What a difference a hundred days can make in geopolitics.
The much-anticipated risk of an outright trade war between the US and China following US President Donald Trump’s election has subsided after leaders of the two countries met face-to-face to find common ground. The macroeconomic focus has shifted back to oil prices, commodities and growth demand developments in Asia, and the threat of protectionism and isolationism has been averted for now.
Best return on risk: Six countries to watch
As the economic outlook improves once again, South-east Asian nations are expected to be top performers this year. Recent Oxford Business Group (OBG) CEO Surveys conducted in Myanmar, Vietnam and Indonesia show that the majority of business leaders expect high-single-digit growth. Indeed, developing Asia as a whole is on track to deliver growth of 5.7% in 2017, following a 5.8% expansion in 2016, according to the Asian Development Bank (ADB).
In my view, that forecast could be exceeded if China continues to outperform expectations, and India sees a 7.4% annual increase in economic activity. However, ASEAN businesses continue to cite bureaucratic and compliance hurdles, plus hidden trade barriers, as serious challenges facing further integration and development.
Vietnam: 5th year of solid growth
The star performer in trade and investment in 2017 remains Vietnam, whose economy is expected to expand by 6.5% in 2017, after seeing 6.7% growth in 2016. This is the fifth year of solid growth for this $205bn economy that is enjoying a confidence boost from the recent EU-Vietnam Free Trade Agreement (FTA).
Whilst actual implementation is scheduled for 2018, Vietnam has been attracting an increasing share of FDI thanks to a strong consumption story and competitive cost of manufacturing. Sustainable expansion, inflationary pressures and inclusive growth remain the top challenges for Vietnam.
Myanmar: Closing the gap
For its part, Myanmar is still one of the region’s top investment destinations in early 2017: the ADB predicts the country’s GDP will grow by 7.7%, up from 6.3% in 2016. However, in GDP per capita terms it has yet to close the gap on most ASEAN nations. The hope is that in the wake of banking and capital markets reforms, other sectors will attract much-needed investment, though the boom in real estate prices in Yangon is creating some risk of asset inflation in this burgeoning market.
The new Companies Act and streamlined regulation introduced this year are expected to make it easier for foreign companies to set up partnerships with local companies. The biggest challenge for Myanmar – as in Vietnam, Indonesia and the Philippines – is to attract long-term investment in the infrastructure and energy sectors.
The Philippines: Welcome slowdown
The Philippines, meanwhile, already a leading service economy, is expected to see more moderate growth of 6.4% this year, following a stellar 6.8% expansion in 2016. This is, however, regarded as a welcome slowdown given that private consumption accounts for nearly 70% of GDP and analysts have voiced concerns about overheating. The challenge for the Philippines remains poor infrastructure and high concentration of economic activity in Metro Manila, with traffic congestion a much-cited burden to logistics costs.
Read The Report: The Philippines 2016 (2017 report coming soon)
Malaysia: Focus on tourism
Malaysia, along with Singapore, continues to be a top regional integrator. The region of Johor, for instance, is planning new initiatives to create a tourism hub as well as a gateway to ASEAN. Indeed, regional trade and investment offers the best opportunity to stay on track to achieve developed nation status by 2020.
With highly developed banking, health and education sectors, Malaysia has plenty of growth potential in services. Price pressure in Q1 was one of the main challenges, as the government continued to phase out fuel subsidies. The country also faces a likely correction in real estate prices as demand for property softens following a correction in oil and gas prices.
Read The Report: Malaysia 2016 (2017 report coming soon)
Thailand: New sources of growth
Thailand continues to be a leader in food processing, automotives as well as electronics. The new source of growth is expected to come from services, especially health, hospitality and IT. The policy focus recently has been on expanding regional corridors to close the income gap between Bangkok and poorer areas in the north. The overall growth for 2017 is expected to reach 3.5% compared to 3.2% in 2016 and will largely be driven by further gains in manufacturing as well as consumption and investment growth. External headwinds and baht appreciation could weigh on the growth outlook.
Read The Report: Thailand 2016 (2017 report coming soon)
Indonesia: Streamlining regulation
Indonesia, which faced many questions over its foreign investment policy, appears to be turning a corner. The tax amnesty implemented last year has improved fiscal and financial sector liquidity. At the same time, President Joko Widodo’s administration has made it a priority to signal to investors that the country is streamlining regulation.
Read The Report: Indonesia 2017
The common theme throughout the region is the need for long-term access to finance to fund investments in better road, air and sea connectivity. Further deepening of financial markets and increased risk sharing requires regional development banks that can channel savings into long-dated projects. In that regard, the process of further ASEAN integration, and the renewed impetus for cooperation in Asia after the recent US presidential election, could prove to be the main drivers of investment in regional infrastructure.
Want to know more? Read the rest of our reports on the Oxford Business Group website, or join in the discussion on Twitter with @kuncinas and @OBGinsights.