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SOUTH EAST ASIA: ECONOMIC OUTLOOK

5.1.1.2. SOUTH EAST ASIA: ECONOMIC OUTLOOK. Presentation to 31 st ASEAN-Japan Business Meeting Manu Bhaskaran Centennial Group November 2005. KEY POINTS. SE Asia is making a comeback Political risks have been reduced Indonesia is the key improvement Structural rise in economic growth

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SOUTH EAST ASIA: ECONOMIC OUTLOOK

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  1. 5.1.1.2 SOUTH EAST ASIA:ECONOMIC OUTLOOK Presentation to 31st ASEAN-Japan Business Meeting Manu Bhaskaran Centennial Group November 2005

  2. KEY POINTS SE Asia is making a comeback • Political risks have been reduced • Indonesia is the key improvement • Structural rise in economic growth • Investment rates to rise • China and India • SE Asia is adjusting, not a loser - yet

  3. POLITICAL RISKS: SE ASIA Religious extremism / terror: contained • Indonesia: stronger will to act • Bali bombs notwithstanding • Decisive measures in Malaysia • Singapore: a hard target • The exception: Southern Thailand Bottom line: one-off incidents, not more

  4. ECONOMIC PROSPECTS Both cyclical and structural positives • Cyclical turn • OECD demand, tech demand • Structural factors • Coping with competitiveness challenges • Rising investment ratio

  5. ECONOMIC PROSPECTS (2) Cycle: Exposed to global economic risks • Global demand growth to recover • Lead indicators in OECD rising • Tech demand also up • Electronics demand vital to SE Asia • Rising rates, higher oil prices a risk

  6. CYCLICAL RISKS OECD lead indicators up: export demand

  7. TECH DEMAND UP Demand for electronics rising again

  8. WHAT CAN GO WRONG? External risks • Global imbalances threaten demand • US current account deficit • Housing bubbles • China – possible slowdown • Regional headwinds • Rising interest rates, inflation hurt

  9. HOW RESILIENT IS SE ASIA? Resilience has improved • Economies more diversified • Domestic demand vs external • New niches of activity expanding • Domestic demand has healed • Consumer demand revived • New investment cycle • Better policy: • exchange rates flexible more anticipatory

  10. ECONOMIC PROSPECTS (3) SE Asia: coping with new competitors • Share of world exports still high • Share of FDI fell • But signs of turnaround • Adjusting • Policies changing • Companies restructuring

  11. SE ASIAN COMPETITIVENESS

  12. COMPETITION FOR FDI Even China’s share of developing countries FDI fell

  13. SE ASIA GIVES HIGH RETURNS

  14. DIVISION OF LABOUR CHANGES

  15. BUT NEW THREATS EMERGING Benign impact so far, could change • China expanding into components • Direct competition with ASEAN • Further shakeout likely, ASEAN SMEs hit? • But China cannot dominate everything • Indian manufacturing is rising • Strong edge: engineering, skill-related • Will pose more competition eg autos

  16. FDI: WATCH INDIA

  17. FORECASTS

  18. CONCLUSION • Political risks • SE Asia could do better relative to NE Asia • One-off shocks possible but • Resilience has returned • Economic prospects • Cyclical risks are rising • SE Asia finally reviving from 1997 crisis • Can cope with rising challenges from China and India

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