April 18, 2016 7:00 am JST

ASEAN5, India poised for growth spurt -- barring reform setbacks

KIYOSHI KUSAKA, Principal economist, Japan Center for Economic Research

TOKYO -- Major Southeast Asian countries and India are set to maintain their current growth rates in 2016 before accelerating into 2018, a new survey of economists and analysts shows.

     Exports will remain sluggish, but public spending and investment will support the economies. The momentum is especially strong in India, Indonesia and the Philippines, partly thanks to government reforms. One major risk is the potential for setbacks in those reform efforts; another is China's economic slowdown, which is expected to continue. 

     These are the findings of the first Japan Center for Economic Research/Nikkei Consensus Survey on Asian Economies, conducted from March 15 to 31. 43 responses were collected from economists and analysts in the five biggest Association of Southeast Asian Nations economies -- Indonesia, Thailand, Malaysia, Singapore and the Philippines -- along with India. 

     The growth forecast for the ASEAN5, a weighted average calculated from the forecasts for the five countries, is 4.3% for 2016, up slightly from 4.2% in 2015. The pace is projected to speed up to 4.7% in 2017 and 5.1% in 2018.

     For India, the average forecast is 7.7% for the fiscal year from April 2016 to March 2017, up a tad from the estimated 7.5% for the previous fiscal year. India's growth rate is expected to hit 8% in the fiscal year starting April 2018.

     The upward trends for the ASEAN5 and India present a stark contrast to the situation in China. That country's growth rate is expected to decrease to 6.2% in 2018, from 6.9% in 2015, according to a similar survey conducted by Nikkei and NQN in Hong Kong in March.

"Virtuous spiral"

Taking a closer look at individual countries, India, Indonesia and the Philippines are expected to perform particularly well this year before gathering pace toward 2018. "Investments and government spending support economic growth," said Umar Juoro, executive director and senior economist at the Center for Information and Development Studies in Indonesia.

     Euben Paracuelles, Southeast Asia economist at Nomura Singapore, stressed the region's growth potential. Focusing on the Philippines, he said, "A virtuous spiral between investment and growth is developing."

     The high growth rates in these countries are partly driven by government policies. Indian Prime Minister Narendra Modi has sought to liberalize the economy and invite more foreign investment. Indonesian President Joko Widodo scrapped fuel subsidies in his first days in office and has taken steps to spur infrastructure projects. Philippine President Benigno Aquino has striven to improve the country's business environment.

     Dr. Rajiv Kumar, senior fellow at India's Centre for Policy Research, said "the government is working to remove supply-side bottlenecks, which will boost growth rates in the coming years."

     Globally, however, economic conditions are harsh, and China's slowdown is being felt across Asia. Among the six nations surveyed, the negative effects are more acute in Thailand, Malaysia and Singapore, which depend heavily on exports. Sluggish export performance is "likely to persist in 2016," said Dr. Phacharaphot Nuntramas, head of economic and financial market research at Siam Commercial Bank, Thailand.

     Asked about the key risks in the coming 12 months, economists zeroed in on a few. The first: reform setbacks and fading expectations for such steps. This was ranked the No. 1 risk for Indonesia, the Philippines and India, and the No. 3 hazard for Thailand.  

     If the Indonesian government is unable to push ahead with tax reform, "it will be in big trouble," said Dr. Dendi Ramdani, head of industry and regional research at Indonesia's Bank Mandiri.

     Given the importance of reform, the Philippine presidential election in May and the future of the military government in Thailand are pivotal factors.

     China's woes also worry economists throughout the region. This was the No. 1 risk for Thailand and Singapore; for Indonesia and the Philippines, it was No. 3.

     Respondents also cited a U.S. economic slowdown and market turmoil as important risks.

     Commodity price volatility is seen as a serious issue in several countries, but from different angles. The price decline is the biggest risk in Malaysia, and also ranked first in Indonesia tied with reform setbacks, since the economies depend on resources such as natural gas, coal, metals and rubber. On the other hand, a rise in prices is seen as the second-biggest risk for India, which benefits from cheap oil.

     As for the financial markets, turmoil triggered by events in emerging economies -- like that seen after Chinese stocks plunged last year -- tied with a U.S. slowdown as the No. 2 risk for Malaysia.

     Details of the survey can be found at JCER's website: https://www.jcer.or.jp/eng/index.html.

List of survey respondents

Indonesia: Juniman, chief economist, Maybank Indonesia; Dendi Ramdani, department head of industry and regional research, Bank Mandiri; Umar Juoro, senior economist, Center for Information and Development Studies   Thailand: Phacharaphot Nuntramas, head of economic and financial market research, Siam Commercial Bank Economic Intelligence Center; Siwat Luangsomboon, head of research group, Kasikornbank; Thammarat Kittisiripat, senior economist, KT Zmico Securities   Malaysia: Suhaimi Ilias, group chief economist, Maybank Investment Bank; Maslynnawati Ahmad, economist, CIMB Investment Bank; Lim Chee Sing, group chief economist, RHB Research Institute; Wan Suhaimie Saidie, head of economic research, Kenanga IB; Patricia Oh Swee Ling, senior economist, AmResearch   Singapore: Manu Bhaskaran, CEO, Centennial Asia; Randolph Tan Gee Kwang, associate professor, SIM University; Hayato Nakamura, senior economist, Bank of Tokyo-Mitsubishi UFJ   Philippines: Alvin Ang, professor, Ateneo de Manila University; Jonathan L. Ravelas, FVP chief market strategist, BDO Unibank   India: Kentaro Konishi, president and CEO, Daiwa Capital Markets India; Rajiv Kumar, senior fellow, Centre for Policy Research; Dharmakirti Joshi, chief economist, Crisil; Sonal Varma, chief India economist, Nomura India   For multiple countries: Euben Paracuelles, senior economist, Nomura Singapore; David Fernandez, head of FICC research, Asia-Pacific, Barclays; Edward Lee, head of ASEAN economic research, Standard Chartered

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