- FDI inflows into ASEAN-6, as proportion of world inflows, have exceeded China in the past two years
- Inflation will remain within target. Exogenous shocks are the key wild card
- Central banks are unlikely to be in a hurry to front run the US Fed
- Real rates are back in the black, with the scale to narrow in 2024
- Indonesia is gearing up to elections in February, while Singapore undergoes a leadership transition
For the full report with charts and individual ASEAN-6 economic outlook, please download the PDF
The global economy and markets took a few punches in 2023 but remained broadly stable. For 2024, our base case is soft landing in the US and EU, consolidation in China, and a mild recovery in ASEAN (2024 Outlook: Soft landing?). In this note, we discuss the ASEAN-6 country outlook for the year ahead, covering growth, inflation, policy, and political dynamics.
The region has long attracted foreign inflows, but two push factors have accelerated that move since 2017 - de-risking since the onset of US-China tensions, and next, supply chain reconfigurations brought about by the pandemic. While the region might be unable to absorb or replace all the displaced production capacity from China, ASEAN-6 countries offer unique advantages, as we discussed in ASEAN-6: Tailwinds from supply chain reconfiguration. Singapore has been the key beneficiary in terms of quantum of flows, followed by Vietnam and Indonesia. Electric vehicle components, electronics supply chain, and green technologies are few of the key emerging opportunities.
Growth rebound, supported by bottoming electronics cycle and recovering tourism
2024 should be a better year for ASEAN-6 growth. We see annual real GDP growth recovering to 4.7% in 2024, up by 50bps from 2023’s deceleration to 4.2%. The growth uptick will be driven by trade-oriented economies, aided by a bottoming and fragile recovery in the electronics cycle, with continued support from travel and tourism.
There are, nonetheless, risks on the horizon.
Our baseline view assumes a soft landing for major global economies (US, EU), and a soft rebound in China. Yet, the upturn will likely be fragile. The global environment remains highly uncertain and challenging, which could derail ASEAN’s recuperation. Interest rates are high in advanced economies, economic conditions are bumpy in China, and lingering geopolitical tensions could still disrupt supply chains. US-China relations remain tense, while two wars are ongoing. The diversion of cargo ships in the Red Sea since December 2023 is also a reminder of unexpected events that could hinder the trade and manufacturing recovery.
Inflation contained and within targets
ASEAN-6’s inflation retreated over the course of 2023, and we expect headline inflation to be contained and within targets for inflation targeting economies, but with mixed directionality in 2024. Food and fuel, which together account for at least 50-60% of consumer price inflation basket (with food at a sizeable 20-40%), will be key to regional inflation dynamics. Exogenous shocks warrant attention during geopolitical uncertainties and weather disturbances.
Limited urgency to front run the US Fed
Three factors will determine the ASEAN policy direction in 2024 – domestic inflation, financial stability, and global policy outlook. Proactive monetary tightening that began in 2022 and concluded in 2023 has helped to anchor regional inflation expectations and contain second-round effects from unexpected supply-side shocks. Subject to exogenous shocks, the lagged impact of the cumulative tightening is likely to continue restraining core inflation pressures and promote price stability within the central banks’ inflation target ranges in 2024. Consequently, real rates were back in positive territory by end-2023, led by Indonesia and Thailand. With our base case for the US to cut rates in 2H24, we expect the ASEAN counterparts to also consider loosening monetary policy from July onwards, with the easing cycle potentially spilling over into 2025. In the interim, macroprudential measures might be tapped to fine-tune liquidity and credit conditions to take a pro-growth stance, if the inflation outlook remains favourable.
Political dynamics
Amongst the ASEAN-6 countries, Indonesia is gearing up to hold its presidential elections in February 2024, after a decade under President Jokowi’s presidency. Singapore’s leadership transition to the 4G team is likely in 2024. Incumbent governments in Philippines, Malaysia, and Thailand are seeking to deliver on their election promises, whilst maintaining a pro-growth and stability bias. We see limited scope of political instability in the region, while monitoring territorial disputes in the South China Sea.
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Completed Date: 18 Jan 2023 11:04:34 (SGT)
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