Positive momentum is bringing the city state’s gross domestic product (GDP) growth forecast to 2.4% in 2017, up from 2.0% in 2016 and 1.9% in 2015, according to ICAEW’s latest Economic Insight: South East Asia report.
However, the prospect of increased protectionism and further rate hikes from the US would subject export-dependent Singapore to significant knock-on effects, constraining the ongoing recovery.
The outlook for the ASEAN economy has begun positively, with Asian exports continuing to recover. However, a key external risk to ASEAN growth is the impact of US President Trump’s protectionist policy stance, and it is unclear to what extent a stronger US economy will affect the region.
Singapore monthly trade data indicates that exports are continuing to recover, and the Purchasing Managers Index (PMI) manufacturing and electronic surveys have been above 50 – the line between expansion and contraction – for six consecutive months, with new orders pointing to ongoing demand for exports.
Given the uncertain global backdrop, unstable recovery in external trade is to be expected. The heavily export-dependent Singapore would be subject to significant knock-on effects, in the case of increased protectionism, even if it were not the direct target of increased tariffs.
There are also tentative signs that local business investment may be beginning to recover. Prospects of further rate hikes in the US and, therefore, domestic interest rates could snuff out any recovery in business investment before it gathers traction.
Nonetheless, investment is likely to be a lesser drag on growth this year, as government spending picks up. Fiscal spending is forecast to be mildly stimulatory following the Budget announcement that a number of infrastructure projects will be brought forward.
“There are various factors limiting Asia’s economic recovery, so we remain cautious on the outlook for the region,” says Priyanka Kishore, ICAEW Economic Advisor & Oxford Economics Lead Economist. “We do expect export contribution of net export growth to fall slightly this year, with the bulk of growth in Asia generated by domestic demand. This is similar to trends visible since 2011.”
Mark Billington, Regional Director, ICAEW South East Asia, said: “While there is an overall improvement in confidence, there are wider global and political factors that continue to pose a risk, not least in the US. Countries in South East Asia will need to focus on sustaining their recovery and hedge against the potential ripple effects.”
Domestic demand driving South East Asia growth
Steady growth momentum in the US and China is expected to enhance global economic growth and trade. This bodes well for Asia, especially East Asia - or ‘Factory Asia’ - which relies more on trade as a driver of growth.
However, protectionist policies in the US, and tightening of monetary conditions, are likely to constrain the ongoing recovery in global and Asian trade.
Malaysia’s GDP growth forecast to reach 4.4% in 2017
Modest growth pick-up supported by exports and firm domestic consumer spend are expected to weather challenges from a stronger US economy and slowing local business investment.
Malaysia continues to face a number of risks, such as domestic political uncertainty, which weigh on consumer and business spending, as well as the risk that government spending will accelerate ahead of the general election which is expected to be held before August 2018.
Disappointing growth in Myanmar
Exports in Myanmar were a major drag, and trade was noticeably lackluster as goods exports declined 11.6% in H1 2016.
A stronger second half is expected on the back of improved construction activity in Yangon, better outlook for trade, the lifting of US economic sanctions and a resurgence of FDI inflows.