Rajiv Biswas, Asia Pacific chief economist at S&P says this is supported by the continued expansion of domestic demand in a number of large Southeast Asian economies, as well as foreign direct investment inflows that are expected to remain strong as multinationals continue to diversify their manufacturing supply chains towards Southeast Asian industrialised nations.
The near-term outlook is for continued strong growth in the ASEAN region in 2024, driven by resilient domestic demand and some improvement in exports of goods and services.
A gradual upturn in merchandise exports is expected during 2024, after a significant downturn in exports of goods in many Asian industrial nations during 2023 due to weakness in key consumer markets in Western Europe and mainland China.
Additionally, it should be noted that a number of ASEAN central banks are also expected to begin easing monetary policy during 2024, which will help to provide some stimulus for economic growth.
Medium term economic outlook
Meanwhile, the medium-term growth outlook for the ASEAN region remains very positive, underpinned by sustained expansion in private consumption in some of the largest consumer markets in Southeast Asia, including Indonesia, Philippines, Vietnam and Malaysia.
Strong government investment in infrastructure is also expected to boost the overall pace of growth in domestic demand.
In addition, Southeast Asia is expected to become an increasingly important destination for foreign direct investment inflows, as multinationals diversify their supply chains to benefit from a growing number of competitive advantages in the ASEAN region.
The favourable ASEAN outlook for foreign direct investment inflows is supported by a number of key factors, Biswas says.
- Continued strong expansion in domestic consumer markets in large APAC economies, notably mainland China and India, will be an important factor supporting further growth in demand for ASEAN's raw materials, intermediate goods and final manufactured products. Sustained firm economic growth is driving rapid growth in per capita GDP in many of Asia's largest emerging markets, which will help to boost demand for a wide range of ASEAN exports. Intra-ASEAN trade is also expected to show sustained rapid growth, buoyed by rapid growth in large and fast-growing Southeast Asian nations, notably Indonesia, Philippines, Malaysia and Vietnam.
- Electronics production is an important part of the manufacturing export sector for many ASEAN economies, including Malaysia, Singapore, Philippines, Thailand and Vietnam. Furthermore, the electronics supply chain is highly integrated across different economies in East Asia. The medium-term outlook for Asian electronics manufacturing is supported by many key growth drivers. This includes continued 5G rollout over the next five years, which will continue to support demand for 5G mobile phones, as well as demand growth for electronics products that integrate artificial intelligence capabilities. Demand for industrial electronics is also expected to grow rapidly over the medium term, helped by Industry 4.0, as industrial automation and the Internet of Things boosts rapidly growth in demand for industrial electronics.
- The ASEAN auto manufacturing industry will benefit from the global transition to electric vehicles (EV), which is driving demand for EVs. In early 2023, Hyundai started assembly of Ioniq 5 EVs at its new Hyundai Motor Group Innovation Center in Singapore. Indonesia is already a key Asian automotive manufacturing hub and has also benefited from strong foreign direct investment flows from multinationals to build new nickel smelters and electric vehicle battery plants. In Thailand, the Board of Investment has approved investments by 16 electric battery vehicle manufacturers amounting to a total of around Baht 40 billion.
- With international tourism travel recovering strongly following the COVID-19 pandemic, the tourism industry is expected to be another important growth driver for ASEAN exports over the medium-term. Overall international tourism flows are expected to show strong growth as per capita household incomes in large Asian consumer markets continue to grow rapidly, driving international tourism travel to ASEAN tourism destinations. This will help a number of ASEAN economies where tourism contributes a significant share of total GDP, including Thailand, Malaysia, Philippines and Singapore.
- The rapid growth of ASEAN exports is also expected to be strengthened by the APAC regional trade liberalization architecture. This includes the large Regional Comprehensive Economic Partnership (RCEP) in which all ten ASEAN nations are members, as well as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) multilateral trade agreement which has a number of ASEAN members. The ASEAN region also benefits from the ASEAN Free Trade Area (AFTA) as well as a growing network of major free trade agreements (FTAs) involving APAC economies.