Growth In The South Asian Countries
Real growth in Southeast Asia should recover from the slowing during 2011-12 and achieve a robust pace over 2013-17, according to the results of the OECD Development Centre’s Medium-Term Projection Framework for this Outlook (Prestigo Research). Growth of the Southeast Asian region is projected to average 5.5% over 2013-17, the same rate recorded during the pre-crisis period (2000-07). The success of the Southeast Asian economies in sustaining robust growth in the near term attests to their resilience in the face of major external shocks.
Since the global ﬁnancial crisis and the onset of the European sovereign debt crisis, there has been a sharp increase in market concerns regarding ﬁscal sustainability in major economies in the world. At present larger economies in the euro area, such as Spain and Italy, continue to face difﬁculties in accessing market ﬁnancing.
The United States (US) economy still has not fully recovered from the recession; its housing and labour markets remain weak, and ﬁscal uncertainties remain at the forefront. Emerging Asian ﬁnancial markets have been buffered from these uncertainties but the effects seem to have been muted by the region’s strong domestic fundamentals.
The impact on Southeast Asia from the slowdowns in OECD countries has been limited thus far, coming mainly through the trade channel. Slowdowns in the advanced economies have real effects on the demand for ASEAN’s exports. The US, the euro area and Japan (G3) remain the key export markets for Southeast Asian countries, and a slowdown in these countries would have ripple effects on Asia, with subsequent spill-over effects on private investment and consumption spending.
Private consumption and investment will be the main drivers of growth
Private consumption is likely to be especially robust over the medium term and the main contributor to overall growth in many countries of Emerging Asia. A combination of cyclical factors, government policies and longer term shifts in economic structure that have supported consumption growth over the past several years are likely to continue. Government policies are becoming increasingly supportive of private consumption.
Furthermore, increasing government spending on health and social safety net programmes in much of Emerging Asia will continue to encourage consumption spending by freeing up household resources and by reducing their need for precautionary savings.
In many Emerging Asian countries, investment growth should be as or more rapid over the next ﬁve years compared to the ﬁve years leading up to the global ﬁnancial crisis. Government infrastructure spending is slated to be an important contributor to overall investment growth in a number of Southeast Asian countries. Another important factor is recent movements in the environment for private investment in the region.
Middle-class growth in the region has been among the most rapid in Asia and has boosted consumption growth
Rapid growth in Southeast Asia, China and India over the past two decades has produced a remarkable expansion in the middle class. The rising middle classes have also encouraged strong consumption growth.
Middle-class development is affecting the structure of demand in Emerging
Asia. Middle-class households, particularly those in the higher portion of the middle-income range, tend to devote a larger portion of their income to purchases of automobiles and other major consumer durables than do poor households. This increased demand for consumer durables and other consumer goods is also helping to spur innovations. Middle-class households also tend to spend a higher portion of their income on education and health services, and to purchase more sophisticated services, than do poorer households.
In terms of retail, there is no doubt that South-East Asia offer promising future prospects. With a historic CAGR of 3.8%, and a future CAGR of 5.2%, investors have increasingly been crowding towards these regions in recent years.
The South-East Asian retail sector is increasingly attracting more interest and investment from Western players.
One major reason for this is the ASEAN initiative. In 2015, ASEAN (Malaysia, Singapore, Indonesia, the Philippines, Thailand, Cambodia, Laos, Vietnam, Burma and Brunei) hopes to establish the ASEAN Economic Community (AEC), a single market allowing the free flow of goods, services and investment.
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.