After a stellar 2012, Asia is expected to see some of its stars shine even brighter as the region remains the main hope of keeping the global economy on a positive trajectory.
Funds will continue to flow into the region as long as there are questions about the European and United States economies, where recovery remains weak.
But despite being economically more stable than the rest of the world, Asia too has concerns about signs of slowing growth in China and India, while Japan can’t seem to escape the stagnation that has bedeviled it for nearly two decades.
The region’s political landscape also could be rocky if the old disputes that resurfaced with a vengeance in 2012 persist. The flashpoints remain in the South China Sea between China and at least four members of Asean, and on the East China Sea islands called Senkaku in Japan and Diaoyu in China.
Closer to home, things could also heat up between Thailand and Cambodia in October when the International Court of Justice (ICJ) is scheduled to rule on 4.6 square kilometers of disputed territory around the Preah Vihear temple complex. Cambodia asked the court to clarify its 1962 ruling on the issue, and both countries have said they will respect the ICJ decision. At least, that’s what they’re saying now. If history is any guide, things could get complicated if either side has to face the loss of claimed territory.
In any case, don’t expect Asean to wade into any dispute involving two of its members. Brunei, as the Asean chair for 2013, is already talking about being constructive and conciliatory, which could be a relief after a fractious 2012 when Cambodia held the chair.
Le Luong Minh
A new secretary-general, Le Luong Minh, takes the helm from Thailand’s Surin Pitsuwan who headed the organisation for five years. Mr Minh, previously the vice foreign affairs minister of Vietnam, will help steer the 10-country group toward a long-awaited single market at the end of 2015. The Asean chairmanship will shift to Brunei, with hopes for less of the discord that arose under the leadership of Cambodia last year.
Talks will begin this year on the Regional Comprehensive Economic Partnership (RCEP) involving the 10 Asean states plus China, Japan, South Korea, India, Australia and New Zealand. The goal is to form the world’s largest trade and economic grouping by 2015.
Economically, Southeast Asia is forecast to grow a robust average annual rate of 5.5% from 2013-17, the same as during the pre-crisis period (2000-07), according to a study by the OECD. Domestic demand growth, particularly private consumption and investment, will play a growing role as many economies try to reduce their reliance on exports.
The world is taking a keen interest in the new government’s economic policy and strategy for recovery now that the Liberal Democratic Party, which has run the country for most of the past 65 years, is back in office, headed by Prime Minister Shinzo Abe. The initial forecasts are not promising. Bangkok-based Kasikorn Research Center sees GDP growth in a range of 0.2% to 1.2%, well below the tepid 1.7% estimated in 2012.
The Bank of Japan (BoJ) is likely to be forced to ease monetary policy in response to efforts by the Abe administration to overcome nagging deflation. It is expected that the BoJ will inject more money into the system, weakening the yen, which will benefit exports and the economy as a whole. However, even a weaker yen might not help exports very much given the fragile state of the global economy.
For the smallest economy in Asean, becoming a member of the World Trade Organization after more than a decade-long effort is a significant move and a golden opportunity to benefit from market liberalisation globally.
In addition to construction of ongoing large-scale hydropower projects, mining and related construction will be the main driving force for economic growth, as the two biggest mining companies in the country are expanding capacity.
The tourism industry expects to build on the successes of 2012, when the country attracted 2.8 million foreign visitors. A highlight will be the Asean Tourism Forum (ATF Travex) from Jan 22-24 in Vientiane. It is expected to be 40% larger than the previous ATF Travex, aiming to attract more than 1,000 exhibitors from across Asean.
After claiming a dramatic election victory in December, President Park Geun-hye will assume office in February, with a challenging task to lead a country grappling with income inequality, a slowing economy, anxiety over education and youth unemployment. The fourth-largest economy in Asia also needs to find the best way to deal with strained relations with North Korea.
The Seoul-based LG Economic Research Institute has forecast the country’s GDP will expand by 3.4%, helped by improving growth in the US and China. The Organisation for Economic Cooperation and Development (OECD), however, cautions that growth could be limited due to structural problems such as the slumping real estate market and massive household debt, which will keep domestic demand low. It foresees GDP expansion of 3.1%, down from 4% forecast earlier
More financial stability and election spending in the first half of the year are expected to be the biggest contributors to growth in 2013. The Philippines turned in Asean’s best economic growth in 2012 and had the 10-country region’s best-performing stock market behind Thailand. Christmas and New Year consumer spending will get the economy off to a strong start, helped by robust remittances that spur purchasing powers among families of overseas workers.
According to an industry report, construction projects are expected to nearly triple in value this year as the fast-growing economy supports demand for infrastructure in various sectors from residential to civil construction.
The region’s biggest economy picked up during the fourth quarter of 2012 and the momentum is likely to continue into this year as new leaders under Xi Jinping ramp up state spending and investment. Manufacturing expanded at the fastest pace in 19 months in December, stoking optimism that a recovery is gaining traction.
The rebound after seven consecutive quarters of slowing GDP growth reflected increased state spending on infrastructure and accelerated investment-project approvals. Even so, the final figure for 2012 was expected to be below 8% for the first time in more than a decade. Forecasts for this year are for an improvement to 8.6%.
Tensions in the South China Sea are likely to continue, with the Philippines the most vocal of the Asean countries claiming territory that Beijing also covets. But the dispute with Japan bears closer watching, with new PM Shinzo Abe making more nationalistic noises than his predecessors about islands in the East China Sea.
In a difficult year for the global economy, Vietnam was not spared in 2012. While GDP expansion was estimated at 5.2%, it was below an official forecast of 6.5%, which was later downgraded to 5.5%. Inflation remained in single digits and export growth exceeded import growth, but the industrial production index was very low, inventories high, and business bankruptcies rose markedly.
So what can we expect in 2013? More of roughly the same, based on the government’s modest targets: GDP growth of 5.5%, inflation at 8%, exports increasing by10%, a trade deficit at 8% and total investment for social development 30% of GDP. On the plus side, interest rates, which remain high with a central bank benchmark of 9%, should start dropping very soon.
In the banking system which was beset by scandals and mismanagement last year, high bad debt ratios and low credit growth could hurt economic development if not addressed properly this year. The State Bank of Vietnam puts bad debt at nearly 9% of credit outstanding, though international organisations estimate it at 12% or more. Credit growth is forecast to rise in a range of just 5% to 5.5% this year. SBV Governor Nguyen Van Binh last month said the government would spend up to 150 trillion dong ($7.14 billion) to deal with bad debts this year.
Property developers, meanwhile, are crying over the prolonged freeze in the real estate market, with a rising number of unfinished projects due to the lack of capital and high lending rates. Customers are turning their backs on housing despite prices that have dropped to “dream” levels, because they believe prices could fall even more. Analysts believe real estate won’t rebound until the problems with the banks are fixed and the credit tap is turned on again. However, the market still has some bright spots, and if businesses adjust and focus on the popular segment of low-income and small-area housing, they will succeed.
After two years of drift and disappointment, the economy is expected to have some renewed vigour this year. The investment bank Goldman Sachs says India’s GDP growth is likely to accelerate from 5.4% last year to 6.5% in 2013 and 7.2% in 2014 — largely due to a favourable external demand outlook and domestic structural reforms. India had been growing by 8-9% before the global financial meltdown of 2008.
On the political front, the Congress Party will step up its work to retain power following general elections in 2014, when Rahul Gandhi could well become prime minister. Congress is the largest constituent of the ruling UPA coalition and is headed by Rahul’s mother Sonia Gandhi, widow of the late prime minister Rajiv Gandhi. Opposition parties are fiercely opposed to dynastic politics but have never been able to cobble together a credible alternative.
Meanwhile, the opposition Bharatiya Janata Party is projecting Narendra Modi, the chief minister of Gujarat, as a potential prime ministerial candidate.
The city-state entered 2013 on an upbeat note amid reports that the economy in the fourth quarter of 2012 expanded by 1.8%, according to preliminary data. Most economists had expected another contraction, though not as severe as the 6.3% drop seen in the third quarter. Prime Minister Lee Hsien Loong said, however, that weakness in the US, Europe and Japan would limit Singapore’s growth to between 1% and 3% in 2013.
In the capital markets, both Singapore and Hong Kong are forecast to return to prominence in initial public offerings (IPOs) during the latter part of this year after a quiet 2012. The IPO tracker Mergermarket said Singapore recorded a 44% drop in the value of the new listings and a 15% fall in IPOs in the first 11 months of 2012. The corresponding figures for Hong Kong were 75% and 14.3%. Most of the attention in Asia last year focused on Malaysia, where the value of new listings jumped 260%, helped by a handful of giant IPOs including Asia’s biggest healthcare provider, IHH.
The country has been buzzing for months already about what everyone calls GE13. The general election must take place no later than June, and some observers believe the opposition has its best chance ever of dislodging the ruling coalition and gaining control of Putrajaya.
March is said to be the favoured month, but no one really knows what Prime Minister Najib Razak has in mind. It’s worth noting, though, that while the opposition made significant gains in 2012, the premier’s own popularity inched up to 65% in November from 64% in May, according to the Merdeka Centre for Opinion Research.
Once the election dust settles, all eyes will be on party elections. If UMNO does badly at the polls there could be calls for a major house-cleaning and some new leadership with new ideas.
On the business front, the entry of Malindo Air, a new budget airline, is eagerly awaited by flyers who bemoan the lack of choice and fare competition in a market dominated by AirAsia and Malaysia Airlines.
A major economic and social development will be the extension of the retirement age from 55 to 60 for the private sector on July 1. An estimated 400,000 people will have the option of working longer, saving more and potentially improving the quality of retirement life. However, businesses have complained that they don’t have time to adjust and the government has relented, giving them until Jan 1, 2014 to comply.
Southeast Asia’s largest economy has cooled slightly as global commodity prices ease after years of rapid upward movement, though most observers believe consistent annual growth of around 5.5% is still achievable. However, the strategically vital mining industry bears watching following the termination of several projects pending a recovery in prices.
Hatta Rajasa, Coordinating Minister for Economic Affairs, is optimistic that GDP growth in 2013 will reach 6.8%, based on the momentum created by large foreign investment flows in 2012 and further FDI gains in 2013. He cites a McKinsey study that says Indonesia is now regarded as one of the best investment destinations in the world.
On the political front, the buzz is still about the “Jokowi” phenomenon. Starting with a simple idea, Joko Widodo (Jokowi) and Tjahaja Basuki Purnama (Ahok) used plaid shirts to symbolise their honesty and hard-working spirit when they ran for governor and deputy governor of Jakarta last year. To the surprise of many, they won, despite an undercurrent of racial and religious chatter. Jokowi was formerly the mayor of Solo in Central Java, while Ahok is of Chinese descent. But now that they’re in charge, can they fix Jakarta’s terrible traffic?
On the business front, Chairul Tanjung, the ninth richest man in Indonesia with a net worth estimated at US$2 billion, shocked many when he acquired control of the local Carrefour hypermarket operation. With a 40% stake, his TransCorp becomes the major shareholder, while Carrefour SA still has 39%, Carrefour Nederland BV 9.5%, and Onesia BV 11.5%.
After a series of labour rallies, the local government of Jakarta has raised the minimum wage by 40% to 2.2 million rupiah (6,930 baht) per month. The Indonesian Employers Association (Apindo) complained bitterly, saying the average in Jakarta was now 5-17% higher than what businesses must pay elsewhere in the country.
Myanmar continues its emergence on the global stage with two noteworthy events coming up this year. The World Economic Forum on East Asia: Courageous Transformation and Integration, is scheduled on June 5-7. It will be the first time that decision-makers from industries, governments, academia and civil society from around the world gather for a major international meeting in Yangon.
The second major event will be the 27th Southeast Asian Games (SEA Games), from Dec 11-22 in Nay Pyi Taw, Yangon and Mandalay. The country has held Asean’s biggest sporting event twice before — way back in 1961 and 1969. The government has guaranteed that athletes and officials will not face accommodation problems as there will be enough hotels. That guarantee could be hard to keep given the boom in tourism and the resulting room shortage.
The economy between 2013 and 2017 is expected to grow more than 6% a year on average, helped by the reforms that have been building since 2010. The new Foreign Investment Law approved in November 2012 is expected to be a big help, if regulations are passed and followed to match the liberal spirit of the law.
Sultan Haji Hassanal Bolkiah
The sultanate takes over the chairmanship of Asean and will host the Asean Summit in October, along with numerous ministerial and related meetings. Brunei expects the construction of its new airport to be completed by October to accommodate all delegates. The sultanate is looking forward to using the Asean chairmanship, its fourth, as a mediator in meetings among the 10 countries.