According to a Bloomberg news article published online on October 02, 2013, entitled, “Emerging Asia GDP Forecasts Cut Amid Fed Taper Concern”, it highlighted some of the challenges facing Asia as we head into the year-end, and moving forward to 2014, namely the slowdowns expecting from China and India’s economies. In the latest economic assessment by the ADB, it highlighted the potential slowdown and risks going forward as China’s growth is expected to maintain at approximately 7.6 percent this year as it transitions to a more consumer-led economy, rising affluence, and India is expected to expand just 4.7 percent for the fiscal year ending March 2014 as the country tries to manage its large current account deficit, and the declining foreign reserves that are causing the Indian Rupee (INR) currency to fall dramatically in recent months.
With the expected subdued economic outlook issued by the economists from ADB, these two economic powerhouses do cause some impact on the potential economic growth of the ASEAN economies going forward, especially dealing with issues such as trade flows on an intra-region basis, and worldwide scale as well. According to the latest ADB assessment of the ASEAN economies, it expects growth in the region will probably expand to approximately 4.9 percent for 2013, and 5.3 percent in 2014. ADB economists are also forecasting that consumer inflation in much of developing Asia, including the ASEAN economies are expected to stay moderate, rising to approximately 3.6 percent in 2013, and 3.7 percent in 2014. However, one of ASEAN’s second largest economies, Indonesia, might not be spared, as the country grapples with the continued devaluation of the country’s currency, the Indonesian Rupiah (currently trading at record low of between Indonesian Rupiah (IDR) 11,300.00 to IDR 11,400.00 range to the US Dollar versus an annualised level of approximately IDR 9,000.00 to IDR 10,000.00). The country is also facing severe inflationary pressures, and a high current account deficit relative to its overall GDP. The country is facing some of the impacts from the effects of the reduction of the fuel subsidies earlier in the first half 2013, massive capital outflows following the uncertainties surrounding the timing of the US Federal Reserve’s (Fed) USD 85.0 billion a month bond buying programme, aka Quantitative Easing or QE, and the relative widening of the income inequality between the poor and the rich in the country.
Despite the subdued assessment on the growth outlook on Asia on the whole, I believe that the overall assessment on the ASEAN economies did not turn out to be very disappointing as economic growth is expected to increase to 5.3 percent in 2014, and should be quite positive. However, despite the improvement in the outlook for the ASEAN economies, there continues to be challenges which might inhibit investments and trade, namely the ongoing territorial disputes in the South-China sea, potential disorderly deleveraging as a result of an expected US Fed tapering later in 2013, the lack of a continued push forward in adopting fiscal and monetary reforms to shore up some the ASEAN countries’ economies, namely Indonesia, political uncertainties as Indonesia approaches to 2014 when the country is expected to elect a new leader to replace current President Susilo Bambang Yudhoyono, whose term is expected to expire in 2014, and is ineligible to run for President for another term, etc. Such risks cannot be discounted, as most of the countries, worldwide, are expected to experience slow economic growth, including Europe and China throughout this and next year.
I believe that future economic growth in the ASEAN region is expected to be coming mainly from Intra-region trade and investments, especially with the gradual opening up of the economy in fellow member, Myanmar, and the upcoming opening of the bi-annual South-East Asia (SEA) Games scheduled for December 2013, which is expected to help to boost tourism growth, and awareness among foreign investors on the investment opportunities available in the country. With the current civilian government led by President Thein Sein, and the rate of foreign investments that has begun to pour into the country, it is expected to thrive as growth momentum starts to push up the living standards of the locals. However, with all the growth in Myanmar, sectarian violence continues to be one of the major risks that could halt the overall pace of reforms that are much needed in order to keep the country on the growth trajectory.
In conclusion, I do believe that ASEAN economies have the potential to overcome many challenges that could hamper the pace of economic growth in the region, especially in the area of trade, investment, and economic co-operation among the members. I believe that the Indonesia leaders should work towards speeding up its fiscal and monetary reforms in order to soften the severe blow to its external finances, including the current economic/financial dysfunctions that might happen as the global financial markets are expected to keep a close watch on the next US Fed moves regarding tapering moves come December 2013.