“Government infrastructure investment is a key contributor to growth in Indonesia, the Philippines, Singapore and Thailand,” said a new ADB report.
The Bank of Thailand’s forecast for this year is 3.2-per-cent growth in gross domestic product.
In an update of its flagship annual economic publication, “Asian Development Outlook 2016” (ADO), the ADB kept its 2017 GDP growth forecast for Thailand unchanged from its March estimates.
Infrastructure investment in the Philippines and Thailand is a reason that convinced the development bank that Southeast Asian economies would see growth edge up to 4.5 per cent in 2016, from 4.4 per cent in 2015. This countered sluggish export demand and drought that caused agriculture to contract in all these economies except Indonesia in the first half of 2016.
Despite strong performance in the Philippines and Thailand, forecasts for Indonesia, Malaysia, Singapore and Vietnam were downgraded for several reasons.
For Indonesia, the 2016 growth forecast is cut to 5 per cent, improving on 2015 but 0.2 percentage point below the earlier projection because investment is rising at a more moderate pace than anticipated.
In 2017, the subregion is expected to benefit from a pick-up in demand from advanced economies and higher prices for export commodities, but the forecast is trimmed by 0.2 percentage point to 4.6 per cent.
Inflation is lower than earlier projected, suppressed by soft global food and fuel prices. It is now seen slowing to 2 per cent in 2016 before picking up to 2.9 per cent in 2017 on higher global commodity prices and domestic demand.
The report noted that household debt required careful monitoring in Malaysia and Thailand, where it exceeds 70 per cent of GDP. However, it added that excessive household leverage was not likely to set off a severe crisis in Asia as long as interest and unemployment rates are low.
Developing Asia, a group of 41 countries including Thailand, is expected to expand by 5.7 per cent in 2016 and 2017 thanks mainly to resilience in the region’s two largest economies – China and India – amid external turbulence.
“Strong growth in the PRC and India is helping the region maintain its growth momentum,” Juzhong Zhuang, ADB deputy chief economist, said in a statement released from the bank’s Hong Kong office.
“Still, policymakers need to watch for downside risks including potential capital reversals that could be triggered by monetary-policy changes in advanced economies, especially the US.” The ADO Update notes that risks to the region’s outlook remain tilted to the downside, with the external environment still fragile and the possibility of an interest-rate increase by the US Federal Reserve leaving open the potential for disruptive capital flows that could complicate macroeconomic policy management in the region.
A delayed recovery continues to hamper major industrial economies (the US, the euro area and Japan), and the ADO Update has trimmed the earlier 2016 growth forecast to 1.4 per cent, rising slightly to 1.8 per cent in 2017.