While domestic demand was behind the resilience of Asean economies in 2012, a modest recovery in the United States in the second half of this year is expected to bring a gentle upswing to the more cyclical open economies including Thailand, Singapore and Malaysia, says Citibank’s chief Asean economist, Kit Wei Zheng.

The bank has forecast growth of gross domestic product in the five major Asean economies (Indonesia, Malaysia, Thailand, Singapore and the Philippines) at 5 per cent before rising to 5.3 per cent in 2014 as domestically driven growth gives way to a gradual export-driven pick-up in the second half of this year that is expected to continue into early 2014.

Thailand’s growth is expected to be 4.5 per cent this year after revised GDP growth of 4.4 per cent in the 2012 fiscal year, with investment-driven growth supporting the economy’s return to its potential growth range of 4-5 per cent as flood-induced spending tapers off.

Speaking at the annual economic outlook seminar hosted by Citi Markets Thailand for its corporate clients across various business segments, Kit presented five macro themes for Asean this year.

The first theme is lingering domestic resilience, with modest recovery of cyclicals in the second half.

Resilience of domestic demand will likely persist during the first half, with the Philippines and Thailand expected to outperform.

Key drivers of domestic demand include tight labour markets; continued investment revival amid inflows of foreign direct investment; low real interest rates amid generally low leverage; and room for supportive fiscal policy, which could sustain infrastructure projects, especially in the Philippines and Thailand.

Despite near-term headwinds, a cyclical recovery in developed economies should allow Singapore, Myanmar and Thailand to outperform in the second half.

The second theme is a shifting bias to monetary normalisation amid inflation uptrends.

Key drivers include narrowing output gaps and structural cost normalisation as subsidy rationalisation commences (especially in Malaysia and possibly Indonesia) and wage-inflation pressures (especially in Singapore and Thailand).

The third theme is policies to stay vigilant against external and financial imbalances.

With domestic demand and credit growth still robust and external balances not likely to improve significantly, tighter macro-prudential policies remain an option to tackle imbalances.

The fourth theme is capital inflows and strength of the Chinese yuan to drive forex appreciation, except the Indonesian rupiah.

The last theme is long-term spillovers from rebalancing in China to persist. Foreign direct investments into Asean could continue to benefit from a diversification of multinational corporations’ portfolios of FDI away from China, complemented by decent logistics performance and superior returns on investments in Asean. Recent tensions between Japan and China may also divert Japan’s outward investments into Asean.

On the other hand, rising wages in China could also catalyse structural wage-inflation pressures within Asean, though this need not erode its relative cost competitiveness and may in fact provide a more sustainable basis for consumer spending.

Payong Srivanich, head of global markets and country treasurer at Citi Thailand, said: “Thailand’s economic fundamentals remain strong, which provides a good degree of policy flexibility to deal with continuing external imbalances.

“The outlook is very promising as the country is undergoing structural changes. And in the process, it is unavoidable to see continuing baht appreciation. It is important that corporates actively manage such foreign-exchange exposure while finding ways to take advantage of it.” –The Nation