Friday, January 13, 2006

SE Asia's Key Economies Head For Robust Growth In 2006

According to analysts Southeast Asia's key economies are in for robust growth in 2006, with Vietnam on track to catch up to its wealthier neighbors but Indonesia hobbled by lingering domestic issues. They risks of a bird flu pandemic, higher interest rates and volatile oil prices remain but regional economies are better prepared than before to withstand any adverse impact. Singapore is expected to continue last year's strong growth momentum, while the Malaysian and Thai economies are also forecast to be on firm footing.

Singapore's economy expects to expand by seven percent this year and about five percent over the next two years on the back of sustained regional and global growth. The 2006 forecast is well above the government's growth target of three to five percent for gross domestic product [GDP], the total value of all goods and services produced in the country. The city-state's economy grew by a better-than-expected 5.7 percent in 2005.

The Philippines is expected to remain buoyant. The Philippines to achieve 4.6 to 4.8 percent GDP growth this year, buoyed by foreign worker remittances, The country has about 10 million citizens working overseas which accounted for 11 percent of GDP and 18 percent of current account receipts in the first half of 2005.

Malaysia's economy should grow five to six percent this year from an expected 5.3 percent expansion in 2005 due to a recovery in external demand and sustained domestic demand.

Thailand’s forecast that country's economy to grow 4.5 percent this year from a projected 4.3percent in 2005. Growth in the March quarter should be boosted by a pick-up in agricultural production, tourism and exports. Investments in some mega-projects should help Thailand's economy in the second half. The prolonged political tensions arising from challenges to Premier Thaksin Shinawatra, as well as unrest in southern Thailand are among the domestic risk factors.

Communist Vietnam's rising economic star should also provide a bright spot for the Association of Southeast Asian Nations [ASEAN], a 10-member regional bloc. Vietnam's GDP is expected to have grown at a blistering 8.4 percent in 2005 and will continue to expand above eight percent this year. No any real indicators of a serious problem for the country, which has been scarred by decades of war. Corruption remains a "very significant problem" in Vietnam but progress has been made to fight it.

ASEAN's biggest member,Indonesia should grow 5.0 to 5.7 percent this year, according to the country's central bank. President Susilo Bambang Yudhoyono had initiated reforms, but it is clear that Indonesia is facing a lot of issues. Huge government debt, contradictory laws, and corruption in the judiciary, budgetary pressures and a lumbering bureaucracy are among the key problems.

But Bloomberg said the three of Southeast Asia's four largest economies will probably expand at a slower pace this year due to U.S. dampen exports and local consumers.

Thailand's economy however may quicken on more government spending to 5 percent
from 4.6 percent.

Growth in Indonesia, the region's biggest economy, will slow to 5 percent in 2006 from an estimated 5.5 percent last year.

Malaysia's rate of expansion will ease to 5 percent from 5.3 percent.

Singapore's growth will be 5 percent from 5.6 percent.

Governments in Southeast Asia are trying to spur economic growth by promoting new industries.

The single largest determinant of growth for Southeast Asia is external demand and that hinges on what's happening particularly in the U.S. economy. U.S. growth is expected in the second half of the year, and that will lead to moderating external demand for Southeast Asia. The world's largest economy is expected to ease around 3.5 percent in 2006, from 3.6 percent in 2005 and 4.2 percent in 2004. But U.S. Federal Reserve said that it would remain solid, with output staying near the economy's potential over the next two years.

The Fed's economists said a boost to the U.S. economy from hurricane-related rebuilding would be countered by higher interest rates, the anticipated waning of the positive wealth effect associated with large earlier gains in equity and house prices, and reduced impetus from fiscal policy.

That is definitely going to impact on Southeast Asian exporting economies.