SINGAPORE, Dec. 11 (Xinhua) — Backed by robust domestic demand, the economies of the member-countries of the Association of Southeast Asian Nations (ASEAN) are expected to maintain healthy growth in the upcoming year despite weakness in exports brought about by sluggish external demand, especially from the U.S. and Euro-zone.
Global demand is likely to remain lethargic in 2013 with the U. S. and Euro-zone economies continuing to de-leverage and experience fiscal woes further down the road. The so-called ” fiscal cliff” in the U.S. will dominate concerns in early next year as American lawmakers will be engaged in a vigorous debate over the details of the fiscal budget compromise. The Euro-zone, on the other hand, can only adopt stop-gap measures to avoid an escalation of the Euro-zone sovereign debt crisis.
By contrast, ASEAN’s robust domestic demand will continue to mitigate the negative effects of weak exports. ASEAN has been remarkably resilient this year despite a global economic slowdown, even registering better-than-expected gross domestic product (GDP) growths notwithstanding slower growth in China, India and Northeast Asia.
Estimates made by the Bank of America-Merrill Lynch Research, show that the average ASEAN GDP growth will strengthen to 5.2 percent in 2012, from 4.7 percent last year. The regional grouping ‘s domestic demand is likely to be buoyed by infrastructure projects, which will be supported by inflows of foreign direct investments (FDIs).
Some notable infrastructure projects include the private-public partnership in Philippines, economic transformation program in Malaysia, mega public infrastructure projects such as the six Jakarta urban toll roads, subway trains and monorail network in Indonesia.
In Singapore, the government has committed 60 billion Singapore dollars (49.1 billion U.S. dollars) to double the mass rapid transit network. Other major infrastructure spending will include the construction of new port facilities as well as new airport terminal in the island-nation.
The rise of the middle class and structural transformation, particularly in Indonesia, could also push domestic consumption upwards.
The rising middle-income consumerism as well as process of urbanization within ASEAN will also boost intra-regional trade and this will help mitigate the tepid demand from the developed economies where a significant portion of overall demand of Asia’s exports is still derived from.
The Bank of America-Merrill Lynch cited the favorable demographics and the push for greater integration and connectivity under the ASEAN Economic Community (AEC) by 2015 as the other two advantages of the regional grouping.
Demographics are especially powerful in the Philippines, Malaysia, Indonesia and Indochina over the next decade. As a result, FDIs are shifting increasingly towards Southeast from Northeast Asia.
Even at this stage, the AEC has already triggered an increase in the share of intra-ASEAN trade, investment and tourist inflows. Furthermore, heavy infrastructure investment is planned to enhance ASEAN-10 connectivity.
Indeed, most central banks in ASEAN still have room to cut policy rates should external demand turn out to be weaker than expected. Already, Thailand and Philippines have recently cut rates in October as a pre-emptive measure to bolster domestic growth in view of sluggish external demand.
On account of domestically-driven inflationary pressures, Monetary Authority of Singapore has also recently maintained a steeper appreciation of the Singapore dollars at its semi-annual October monetary policy review in a bid to anchor inflation expectations and fend off capital inflows inflationary pressures.
Notwithstanding its resilient domestic demand, ASEAN is not immune from internal and external downside risks. Some major ASEAN- centric concerns include Malaysia’s upcoming general elections, Indonesia’s inflation, as well as Singapore’s economic restructuring, which will continue to dampen growth prospects and increase labor costs in the city-state.
Should there be a severe U.S. fiscal shock, trade-dependent economies like Singapore, Malaysia and Thailand will be more vulnerable.
Other external factors, such as an escalation of the ongoing Euro-zone sovereign debt crisis, a flare up in Middle East tensions, and weaker-than-expected growth on the China macro front can also potentially derail the growth trajectory of ASEAN. –Tan Shih Ming (Xinhua)
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