It is important to note that forecasts differ, and this might rely in part on how organizations classify the region. Analysts at Credit Suisse anticipate that the growth of the ASEAN-6 economies (Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam) would decelerate to 4.4% in 2023 from 5.6% in 2022.
These numbers indicate that regional economic growth is far above the world average. The IMF predicts a worldwide growth rate of 3.2% in 2022 and 2.7% in 2023. As a result, ASEAN remains an attractive location for foreign investment, giving investors access to one of the world's fastest-growing regions.
The ASEAN expansion story
As the US-China competition escalates and both giants strive to develop ties in the region, ASEAN states might enjoy a favorable geopolitical position in the next decades. Both countries have emphasized their commitment to trade with ASEAN economies, China in particular via entry to the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The United States only has free trade agreements with some ASEAN nations.
This superpower rivalry is not the only element that might contribute favorably to the prosperity of ASEAN in 2023. Multiple nations in the region have significant international tourist sectors, and a further improvement in the epidemiological environment in 2023 should aid the industry's revival.
According to Goldman Sachs, Thailand and Malaysia might experience a healthy four percent increase in global tourism and travel next year. The current account of the former should balanced next year due to a resurgence in tourism.
In 2023, the tourist sectors of Malaysia, the Philippines, and Thailand will likely recover to pre-pandemic levels. Despite the recent elimination of limitations, it is uncertain if Chinese visitors would soon return. The Chinese immigration administration said in December that it will resume providing visas to mainland citizens for international travel beginning January 8.
According to S&P Global analysts, the global slowdown will have less of an effect on economies driven by local demand, such as Indonesia and the Philippines, which will both have at least five percent growth in 2023. The US-based firm asserts that domestic market in Indonesia, Malaysia, the Philippines, and Thailand has further to recover when these countries reopen in full following the epidemic.
All of the aforementioned factors, however, are subordinate to the underlying economic conditions outlined previously. Weakening growth and possibly recessions in developed economies will lower the demand for economic activity in ASEAN countries. In reaction to rising global interest rates, capital outflows, currency devaluation, and accelerated inflation with increased global food and energy costs, several Southeast Asian central banks have upped their policy rates. As previously said, declining inflation should let central banks to adopt a more dovish stance in the second half of the year.
Direct foreign investment
In recent years, ASEAN economies have been attractive locations for FDI. Companies seeking to limit their exposure to China as a result of rising trade restrictions and a desire to locate cheaper production sites will typically find these nations to be viable options.
The majority of nations in the area are seeing above-average GDP growth, as a result of soaring population growth and increasingly free trade policies. In consequence, international firms are looking to Southeast Asia as an alternative manufacturing base due to its competitive salaries, better business rules and infrastructure, and rising local demand.
In 2021, Singapore attracted around $100 billion in international investment. IT, aerospace, electronics, pharmaceuticals, and professional services are Singapore's most important sectors for investment.
Total FDI in Indonesia as of the third quarter of 2022 reached US$57 billion or 75% of the objective of US$80 billion for 2022. Although official numbers have not yet been revealed, the administration is certain that its goal has been met. The government intends to boost its FDI target for 2023 to US$92 billion.
Indonesia is the sole ASEAN member of the G20, and the country's richness of natural resources and 260 million domestic market make it an attractive place for long-term investments.
Vietnam gives investors with access to a variety of internationally competitive industries and offers producers better market access and predictability than China. In the midst of a trade battle between the United States and China, Vietnam has emerged as an alternate wood product supplier. The United States is already the most important market for wood product exports. Following the enactment of rules in the United States regulating forced labor and cotton from China's Xinjiang, Vietnam's textile sector has become increasingly appealing.
Thailand, meantime, has received continuous Chinese investment for some years. The nation is vital to Chinese official goals for global connectivity and private investment, as well as to the ASEAN grouping. The Belt and Road Initiative is addressing the former issue, whereas private investors increasingly view Thailand as an investment destination for efforts in crypto, fintech, blockchain, and AI, as well as healthcare and medical tourism.
The above examples illustrate longer-term tendencies that will persist despite a weaker global economy. In 2023, FDI will likely continue to rise in ASEAN, notably in Singapore, Malaysia, Thailand, Indonesia, and Vietnam.
China's reopening is crucial
China and the health of its economy have a significant impact on economic growth in the ASEAN area, due in part to its geographical closeness and accompanying trade networks.
China's abrupt reopening is expected to have a dual effect. In the first quarter of 2023, Covid and other viruses inhibited by limitations are projected to exacerbate supply-chain bottlenecks and fading demand concerns.
However, following a difficult epidemiological time, China is projected to face the same reopening boom cycle as the majority of other nations following Covid-19. The estimates from the World Bank indicate that China's economic growth would increase to 4.3% in 2023 from an expected 2.7% in 2022.
The reopening is projected to have a significant influence on major economic indicators notwithstanding risk factors such as the real estate market's continued stress.
Despite the fact that some industries in some ASEAN nations might be viewed as net winners of China's domestic issues and its trade conflict with the United States, boosting Chinese growth is beneficial for the ASEAN area.
Source: ASEAN Briefing
