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This report highlights ASEAN's robust economic growth, resilient trade, and increased FDI inflows. It also analyzes the impacts of ASEAN economic integration on trade openness, real interest rates, and financial integration. The report further examines the development gap between ASEAN6 and CLMV countries and the region's global competitiveness and infrastructure quality.
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Economic Growth • ASEAN’s economic performance has been quite robust. Economic growth in the region rose from 4.8% in 2011 to 5.7% in 2012, before some moderation in 2013 (Figure 1). This is noteworthy given slowing global economic growth during this period, from 3.9% in 2011 to 2.9% in 2013. Resilient domestic demand, as well as the recovery of the advanced economies, underpinned overall regional growth. • In the medium term, ASEAN’s economic growth is expected to remain robust, again anchored by strong domestic demand particularly private consumption and infrastructure investment.
Trade • Total trade in ASEAN was resilient, reaching USD 2.5 trillion in 2012, which represented an increase of more than USD 900 billion from 2009 and three times its value in 2000 (Figure 2). Extra-ASEAN trade accounted for 76 percent of total, and intra-ASEAN trade the remaining 24 percent. • With the recovery of export demand in the second half of 2013 and world trade expected to further gain momentum in 2014-2015, ASEAN exports should contribute more to the region’s growth performance.
FDI Inflows • FDI into ASEAN has also risen significantly to USD 110 billion by 2012. This is twice the 2009 level and five times the net FDI inflows in 2000 (Figure 3). • Prospects for FDI flows to ASEAN also remain promising as more FDI is expected in a wide range of sectors such as infrastructure, finance and manufacturing. • Overall, the region has fared well in the aftermath of the 2008 global financial crisis. But these trends highlight that while the region has benefited immensely from its linkages with the rest of the world, ASEAN also remains vulnerable to external shocks and to abrupt changes in investor sentiment from factors which may be unrelated to the region’s fundamentals.
Real Interest Rates • Figure 8 shows that real interest rates amongst the member countries between 2003 to 2011 exhibited a large degree of variability, with negative real interests in some countries and positive in the range of 10-16 percent in others. However, this variability has been greatly reduced after the global financial crisis due to responsive monetary policy resulted to greater financial stability in the region.
Co-movement of Composite Stock Price Indices • The degree of co-movement of the returns also indicates the level of financial integration in the region. Figure 9 indicates strong co-movement of the composite stock price indices of the ASEAN 5, implying a fairly high degree of financial integration among them.
Intra-regional FDI • Figure 10 shows an increasing share of intra-ASEAN FDI inflows since 2006. The increasing inflows were interrupted by the global financial crisis in 2008 – 2009. Since then, intra-regional FDI flows had bounced back and continued to grow since 2010. • Looking at the trends for each country, Indonesia and Singapore displayed an increasing trend for inward intra-regional FDI flows while Thailand showed a decreasing trend. For CLMV countries, after a decline in FDI inflows in 2009, the level of intra-regional inward FDI has been relatively stable during 2010-2012.
FDI Inflows by Dialogue Partners • As for ASEAN’s external FDI sources, particularly the EU, their FDI inflows to ASEAN were adversely affected by the global financial crisis that broke out in 2008. The levels have significantly recovered in recent years (Figure 11). It is worth noting that the share of intra-ASEAN FDI inflows increased during the crisis years, which partly offset the decline in FDI inflows from external sources. Overall, intra-ASEAN FDI flows have been increasing in the past decade and reached 18.3 percent of total FDI inflows to ASEAN in 2012.
Global Competitiveness Index • Table 2 compares the WEF’s Global Competitiveness Index between the period of 2013 – 2014 and the 2012-2013. Singapore is ranked as the most competitive economy in the region, followed by Malaysia, Brunei, Thailand, Indonesia, the Philippines, Viet Nam, Lao PDR, Cambodia and Myanmar. Indonesia has made the biggest jump in ranking from number 50 to 38 in 2013-2014. The other Member States mostly improved their rankings.
Indices for Quality of Infrastructure • In terms of infrastructure, the WEF’s ranking of quality of infrastructure (air, road, and maritime transports, electricity, and telephone) in ASEAN is shown in Table 3. Several countries in ASEAN have made steady improvement in the quality of their infrastructure, particularly Cambodia.
ASEAN6-CLMV Development Gap • To measure how much the development gap has been reduced in the region, several indicators are presented in Table 5. Overall, the results indicate that the gap between the ASEAN6 and CLMV has narrowed in the 2000s, although there is still room for much improvement. • The first indicator, absolute poverty, shows the percentage of the population living on less than PPP$ 1.25 a day. In particular, the table shows a substantial decline in absolute poverty in the region from 2000 to 2010, and significantly more so for the CLMV countries. Life expectancy in ASEAN 6 and CLMV also improved gradually since 2000. Infant mortality rate dropped rapidly in the CLMV countries, which significantly narrowed the gap between the two groups. The gap has practically disappeared with respect to net primary school enrolment rate and youth literacy rate.
Ease of Doing Business • ASEAN has also progressed in terms of SMEs development to promote their competitiveness in the region. One of the indicators that help to capture the degree of integration in this area is improvement in the business regulatory environment. • Table 6 shows that Singapore still remains the top performer in the regulatory environment, followed by Malaysia and Thailand at sixth and eighteenth place respectively. A few countries have also made progress in their rankings this year. Particularly, Brunei Darussalam and the Philippines have made a significant improvement in ranking, especially Philippines which improved 25 spots from 2013 whilst the ranking for Indonesia, Cambodia and Viet Nam have retreated slightly.
Financial Institutions and Accessibility to Finance • The World Bank’s Doing Business Report also provides measures for the strength of legal rights, and the scope and accessibility of credit information. BruneiDarussalam and Philippines have made a remarkable improvement in the area of financial institutions and accessibility to finance as shown in the improvement in their rankings in Table 8.
Total Trade Value and Extra-ASEAN Trade Growth • Figure 15 shows the value of ASEAN’s total trade since 1998 after the Asian financial crisis. Although trade growth fell in the past couple of years, the share of extra-ASEAN trade has been increasing. Thus, ASEAN integration has been trade creating: as intra-ASEAN trade expanded, the region’s trade with the rest of the world also increased proportionately. Regional integration did not divert trade away as efficiencies and competitiveness in the global markets were maintained, and the sophistication of the region’s exports also increased through a wide-range of intermediate goods.
AEC Scorecard and Prioritised Key Deliverables 82.1% of Prioritised Key Deliverables by 2013 have been implemented 188 out of 229 (82.1%) Prioritised Key Deliverables by 2013 have been implemented 61 Key Deliverables for 2014 to 2015 have been implemented Status as of October 2014 Source: Chairman's Statement of the 25th ASEAN Summit: "Moving Forward in Unity to a Peaceful and Prosperous Community," Nay Pyi Taw, Myanmar, 12 November 2014.
Implementation Rates under Phases I - III 82.1% of targets achieved under Phase I, II, and III Pillar I Single Market and Production Base Pillar II Competitive Economic Region Pillar III Equitable Economic Development Pillar IV Integration into the Global Economy 69.6% 84.3% 100% 100%
What Lies Ahead • ASEAN will not follow EU’s path. • AMS are preparing blueprint for 2016-2025: all stakeholders should participate in the development. • Stronger relationship and more robust communication among the stakeholders must be forged. • AMS must continue to reduce the development gaps. • Harmonization and alignment of regulatory framework and infrastructure must continue. • Impacts of integration measures should be more measurable to assess the benefits/costs of ASEAN integration.
Thank You bambang.irawan@asean.org
