ASEAN Economies Face Challenges as Growth Slows Amidst Global Headwinds

Despite mixed GDP growth in the previous quarter, ASEAN economies are expected to face a slowdown in the third quarter due to various challenges, including China’s post-pandemic recovery deceleration, past US Federal Reserve interest rate hikes, weak semiconductor prices, and shifting global demand. Malaysia’s economic outlook remains cautiously positive, with signs of recovery in diverse sectors, but sustaining high growth rates may pose challenges.

25 September 2023 – Despite mixed GDP growth performance in the previous quarter, analysts warn of a pessimistic outlook for ASEAN economies in the third quarter. Growth in ASEAN-6 (Malaysia, Indonesia, Philippines, Singapore, Thailand, and Vietnam) is expected to slow down to around 3.6% in the second half of 2023, down from 4.2% in the first half and 5.7% in 2022, primarily due to various headwinds.

Several factors contribute to the anticipated slowdown, including the deceleration of China’s post-pandemic recovery, past interest rate hikes by the United States Federal Reserve, weak semiconductor prices affecting countries like Singapore and Malaysia, and a shift in global demand away from goods towards services. Furthermore, domestic demand in Southeast Asian countries is expected to weaken, primarily driven by limited growth in real wages and increased debt among lower-income households, particularly in Thailand.

Despite these challenges, Malaysia’s economic outlook remains cautiously positive, with signs of recovery and expansion in diverse sectors such as tourism. The nation’s GDP growth is expected to reach 3% this year, following an impressive 8.7% growth in 2022. However, sustaining high growth rates may pose challenges, including high personal debt burdens and depleted savings among households.

Across the ASEAN region, the trend of falling headline inflation is expected to continue, with CPI inflation forecasted at 3.5% this year, down from 4.6% in 2022. Central banks in the region are likely to have reached the peak of their rate hiking cycles, with some already cutting interest rates or planning to do so.

China’s rapid slowdown may delay rate cuts and put pressure on ASEAN currencies. Nonetheless, the overall economic outlook for the region remains challenging, with varying levels of resilience among individual ASEAN economies.

Author: Terry KS

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