Denpasar, Indonesia, 11 April 2011
ASEAN has posted better-than-expected economic results for 2010, with the regional body reporting a 7.6% growth. This exceeds the Asian Development Bank’s estimate of 6.7% in July 2010. The 2011 outlook for ASEAN also remains strong, with overall growth expected between 5.7 and 6.4%.
Within the grouping, economies of the Founding Fathers of ASEAN – Indonesia, Malaysia, Philippines, Singapore and Thailand – have also posted five consecutive quarters of economic expansion, gross fixed investment and net exports contributed to growth. Economic outcomes for the other Member States – Brunei Darussalam, Cambodia, Lao PDR, Myanmar and Viet Nam – are also strong.
“The main challenges of 2011 are: uncertain global environment, rising inflation, surge in capital inflows, as well as overheating pressures in Asia and financial sector fragility but early identification of these issues means officials are monitoring key data closely, and they are ready to react accordingly, hence the confidence of positive growth for 2011,” said Dr Surin Pitsuwan, Secretary-General of ASEAN.
Pointing to the strong rebound from the 2008 financial meltdown, Dr Surin added that ASEAN’s strategic location, the grouping’s commitment to raise the living standards of its people, and the rising purchasing power of its growing middle-income population, are just three of the key factors behind the region’s robust growth.
Outputs of emerging Asia are well above their pre-crisis levels of 2008 and early 2009. China continues to lead Asia as it expanded from 9.2% in 2009 to 10.3% in 2010. The Indian economy also recorded strong growth in the September quarter supported by broad-based strength in agriculture, manufacturing, services and domestic demand.
Reflecting the strong economic environment, the report by the ASEAN Integration Monitoring Office (the AIM Office), noted that ASEAN equity markets have also rebounded strongly with stock markets in Indonesia up 36 %, Malaysia up 20 %, the Philippines up 28 %, Singapore up 12 % and Thailand up 41 %. These markets have reached record levels in mid-February 2011 – compared to their levels during the same period in 2010.
“Capital inflows have also started to return to the ASEAN region, prompted by favourable economic conditions such as low interest rates in developed economies, and expectations of appreciation of ASEAN currencies. The inflows are primarily direct and portfolio investments which went to sectors unaffected by the business cycle, and geared towards the domestic or regional markets,” said Dr Surin, although he also cautioned that overly enthusiastic short-term inflows could cause inflationary pressures, which will have to be managed accordingly.
The report by the AIM Office also pointed out that capital and financial markets of some ASEAN economies are small, and are not deep enough to handle massive capital inflows. They also have a limited number of financial instruments that can help them re-use capital inflows for production purposes, it added. As a result, capital inflows create macroeconomic imbalance, as evidenced by increased inflationary pressures, and exchange rate volatility.
Reacting to the capital surges, ASEAN Member States have implemented a number of counter-measures. These include sterilisation, encouraging capital outflows, pre-paying foreign debt, keeping a tight lid on credit growth, adopting reserve requirements, setting quantitative limits, imposing some tax measures and promoting greater exchange rate flexibility.