Asean GDP figures don’t tell full story

JAKARTA: Stronger-than-expected growth in some Southeast Asian economies has sparked optimism that the worst of a slowdown may be over, but high debt and weak exports will make sustaining the momentum a challenge once US interest rates start rising.

The Philippines delivered the region’s final third-quarter GDP report on Thursday, posting annual growth of 6%, up from 5.8% in the second quarter. Growth also picked up in Indonesia and Thailand, the region’s two largest economies, taking the weighted average growth in the region of 620 million people with a combined GDP of $2.2 trillion to 4.2%, according to Capital Economics.

Officials from Bangkok to Jakarta have been quick to seize on the improved GDP numbers and consumer confidence as evidence the worst slowdown since the 2009 crisis is over. “We think growth in the third quarter is a turning point,” said Indonesian central bank Governor Agus Martowardojo. Economists and businesses hold a less sanguine view. China’s slowdown and a recession in Japan, both leading markets for the region, high consumer and corporate debt at home and the risk of more market volatility when the US raises interest rates, are all clouding prospects ahead.

“It’s too early to call a trough,” said economist Joseph Incalcaterra at HSBC in Singapore. “We forecast growth in the fourth quarter to be weaker just about everywhere.”

Economic growth has been deceptively underpinned by a fall in imports rather than strength in exports for some countries.

Indonesia’s exports in the third quarter fell 0.7% from a year earlier, but external demand still contributed 1.2 percentage points to the economy’s 4.7% growth as imports tumbled by 6.1%.

Sliding prices of commodities that account for around half of Indonesia’s total exports have crimped incomes and depressed domestic activity, in turn, hitting imports.

“From an accounting perspective, this gives the appearance that growth is stronger than it actually is,” Incalcaterra said.

In Thailand, the external sector’s large contribution to the economy’s 2.9% expansion was mostly due to a drop in imports, as investment shrank for the first time since early 2014. Without the lift from net exports, the economy would have grown just 0.1%.

While additional monetary stimulus could still be deployed to bolster growth, policymakers are wary about capital outflows when US rates rise. There are also limits to what fiscal stimulus can do to counter sluggish global trade.

“Growth will remain weak for the next two quarters until we start seeing signs of a broader pickup outside Asean,” said HSBC’s Incalcaterra.