Domestic demand will continue to propel the Philippine economy to outpace many of its peers in the Association of Southeast Asian Nations (ASEAN) as prospects for global trade remain dim, according to Moody's Investor Service.
In the debt watcher's Inside ASEAN newsletter released yesterday, Moody's Senior Research Analyst Rahul Ghosh and Senior Analyst Christian de Guzman noted the growth outlook of Southeast Asian economies will likely diverge this year and the next. "Against a backdrop of subdued global demand, the growth prospects of ASEAN's major export-orientated economies, Singapore, Malaysia and Thailand, will remain weaker than those of more domestic demand-driven economies, Indonesia and the Philippines, in 2016 and 2017."
As in previous reports, the analysts projected a 6% expansion for Philippine gross domestic product (GDP) in both years. The rest of major ASEAN economies, except Vietnam, are expected to trail such pace. "While we expect growth recoveries in Singapore, Thailand and Malaysia to be shallow, Indonesia, the Philippines and Vietnam will post growth on par with, or exceeding, long-term averages by 2017," the report read.
The Philippines and Indonesia depend less on external trade than other major ASEAN economies, with total trade accounting for 58% of the former's GDP.
In comparison, trade accounts for 346%, 131% and 130% of GDP of Singapore, Malaysia and Thailand. "As such, these three economies are susceptible to a prolonged period of subdued global demand via both the export channel and weaker investment demand," the report read.
Messrs. Ghosh and de Guzman expect G20 economies -- including the United States, China and European Union -- to grow 2.6% this year, flat from 2015. This could slightly accelerate to 2.9% in 2017 although "downside risks to global growth are increasing."
High household debt burdens could further drag private consumption in Singapore, Thailand and Malaysia. Unemployment, however, remains "fairly low" in Singapore, Thailand and Malaysia and offers an "important buffer against financial stress".
"By contrast, economic expansion in Indonesia and the Philippines will likely strengthen in 2016 and 2017, with domestic demand providing the main engine of growth," the report said.
Citing data spanning over a decade to the first quarter of last year, Messrs. Ghosh and de Guzman noted that gross fixed capital formation is "accelerating rapidly" in the Philippines and "picking up pace" in Indonesia. "In each case, public investment contributed to the pickup as governments in both countries sought to gain further traction in developing much-needed infrastructure," the analysts noted.
They added that "[l]ower oil prices have provided greater lift to economic growth in the Philippines, with household consumption growing in excess of 6% for only the second time over the past 25 years."
Vietnam, on the other hand, will likely continue to outperform all ASEAN peers this year and in 2017 despite its dependence on external tade, which accounts for 181% of its GDP. "[T]he country is benefitting from strong manufacturing activity and rising FDI (foreign direct investment) inflows, as foreign investors look to tap into a large and competitive labor force, as well as greater market access for Vietnamese exports resulting from preferential trade arrangements such as the Trans-Pacific Partnership Agreement (TPP)," the report read.
The ongoing efforts to integrate the Southeast Asian economies regionally through the ASEAN Economic Community and globally through schemes like the TPP will provide minimal growth boost in 2016 and 2017, the analysts noted. "Cross-border tariffs have already been virtually eliminated for some time, so a material increase in intra-regional trade is unlikely. Other potential benefits of enhanced regional labour mobility and financial integration are likely to face significant implementation delays due to shifting policy priorities."
While Malaysia, Singapore and Vietnam have signed the US-initiated TPP, the ratification of the agreement by the 12 participating countries will take time given domestic political considerations, the analysts added. "We do note that the free trade pact is likely to bolster trade and growth over the medium term, however, which will be credit positive."
Indonesia, the Philippines, and Thailand have expressed interest in joining the TPP.
ASEAN economies have also been negotiating with the bloc's six largest regional trading partners, including China, for the Regional Comprehensive Economic Partnership.
'BETTER THAN PEERS'
In a separate publication, Morgan Stanley Research also cited the "strong macrofundamentals" of the Philippine economy.
"Growth in the Philippines has held up better than at regional peers given its strong macrofundamentals," read the publication released also yesterday.
Morgan Stanley noted sustained double-digit rates of car sales, capital good imports and other indicators of domestic demand along with the narrowing contraction of the country's export sector.
"While the Philippines will not be immune from global development, we do expect the growth momentum to remain relatively healthy due to the strong pull of structural forces," Morgan Stanley said.
Domestic demand and private investments managed keep the Philippine economy among the region's fastest last year despite missing an official 7-8% target. The country's GDP increased by 5.8% only.
Source: http://www.bworldonline.com
Keywords: Philippines, Indonesia, Vietnam, to lead, ASEAN
