Low interest rates driving ASEAN public, private sector investments — ICAEW report

Southeast Asian governments and companies are operating in a low interest rate environment these days that is natural for them to increase investment in assets and infrastructure, London-based Institute of Chartered Accountants in England and Wales (ICAEW) said Thursday.   “Cheap money will allow countries in ASEAN to fund investments in public infrastructure, from transport links to education systems, while low returns in the financial markets are likely to prompt companies to invest in machinery, technology and skills instead,” the institute said in an e-mailed statement, citing its commissioned quarterly review of Southeast Asian economies.    “Economic Insight: South East Asia,” which focuses on the region’s six largest countries – Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam – is produced by London-based Centre for Economics and Business Research or Cebr, ICAEW’s partner and forecaster.   In a remarkable reversal of fortune, formerly risky countries like Indonesia and the Philippines now pay less to borrow from international capital markets than many eurozone member states, the report noted.   “Money has also become more affordable for ASEAN [Association of Southeast Asian Nations] governments as investors have flocked to the region, looking to park their funds in safer public debt,” it said.   “With the availability of cheap money for ASEAN governments, we expect that public investment in needed infrastructure will increase this year,” said Charles Davis, ICAEW economic advisor and Cebr head of Macroeconomics.   Cebr noted in its review the following forecast on the average investment growth between 2012 and 2014:

• Thailand, 5.2 percent (on the back of reconstruction efforts after last year’s floods)

• Vietnam, 8.1 percent

• Indonesia, 9.1 percent (focused on the mining sector and sectors serving household consumption)

• Malaysia, 6.8 percent

• Singapore, 4.8 percent (the lowest infrastructure investment growth in the region).

However, the global slump raises concerns for ASEAN, particularly due to the continuing uncertain situation in Europe, the slowing down of emerging markets like China, and the stalled US recovery, the report said.   “With the slowdown in international markets, the inherent weakness of an industrial sector geared towards global trade becomes more obvious,” said Mark Billington, regional director for ICAEW South East Asia.   “The more closely linked to Western markets, the more affected the ASEAN economy in question will be,” Billington noted.   “However, the story of a developing ASEAN continues, and we expect ASEAN will weather the global uncertainty well as a bloc,” he added.   Singapore’s GDP has been downgraded substantially following the contraction of output in the second quarter, with an average growth of 2.2 percent expected in 2012 and a marginal increase of 2.5 percent in 2013.   Thailand, Malaysia, Philippines and Indonesia remain positive, according to the report, with domestic demand continuing to fuel growth.   “Nevertheless, falling commodity prices and the falling remittance from overseas citizens may impact Indonesia and the Philippines respectively,” it said.   Other key findings of the report include:   Impact of China slump, euro zone implosion

Though the impact of reduced global growth is expected to be less severe in ASEAN, due to growing middle class incomes and living standards, regional economies are still at risk from unexpected developments globally.   The fragile growth around the world means that a global recession has become a non-trivial possibility, and many countries could follow suit if the US moves into a contraction.   Eurozone troubles continue to spread to other countries and though China is projected to have a soft landing, it remains vulnerable to global conditions.

Philippine growth

Falling remittances from overseas Filipinos are likely to depress 2012 growth, but this will be countered by a considerable rise in domestic consumption – leading to 4.1 percent annual growth.   A strong mandate for the new Aquino [administration] should encourage investor interest in an ambitious infrastructure program that could help the country achieve output expansions of 3.7 percent in 2013 and 4.2 percent in 2014.

Indonesia’s falling commodity prices

Rising domestic consumption and Indonesia’s low cost position in its major export, coal, should provide some buffer against falling commodity prices and global volatility.   Indonesia’s improving perception by the international financial community and a stable macroeconomic environment should help GDP growth to expand by 5.6 percent in 2012, 5.3 percent in 2013 and 6.1 percent in 2014.

ICAEW distributes the report to more than 138,000 institute members. — VS, GMA News