S-E Asian nations 'face struggle to fuel growth'

But economists say increased government spending could be key to economic rebound

Singapore's manufacturing sector has reported its fifth straight month of contraction, adding to the economic woes in the region.
Singapore's manufacturing sector has reported its fifth straight month of contraction, adding to the economic woes in the region. PHOTO: REUTERS

Limited household spending, political instability and a slowing China are adding to the economic woes of South-east Asian nations as fresh signs emerge of governments' struggle to keep the wheels of growth rolling.

Data released in the past week showed Singapore's manufacturing sector reporting its fifth straight month of contraction and Malaysian production slowing the most in November since mid-2012.

The Asian Development Bank, meanwhile, cut its growth forecasts for Indonesia, the Philippines and Singapore.

On average, the region's largest economies are expected to grow 4.1 per cent this year, down from 4.3 per cent a year earlier, according to Credit Suisse Group estimates. That is below the 5.3 per cent average for the region during the past quarter-century and the slowest annual pace since the financial crisis six years ago.

South-east Asia is still on track to outperform more developed Asian economies such as South Korea and Japan, the Wall Street Journal reported, while economists expect governments to play a larger role in the growth story with increased spending bringing a rebound in the prices of commodities.

Fiscal stimulus is expected "to do some of the heavy lifting to support growth and bolster sentiment", said Mr Benjamin Shatil, an economist at J.P. Morgan Chase.

Indonesia and Thailand have already announced plans to spend on infrastructure.

But political uncertainty will also weigh on growth and investor sentiment. Economists do not think Thailand's military government is managing the economy well since it seized power in a coup last year.

Malaysia, too, is affected by the political crisis around the state investment fund. Its currency was Asia's weakest this year, while falling oil prices have knocked a hole in government coffers.

The Philippines, one of Asia's fastest-growing economies and a popular foreign investment target, faces uncertainty next year as the nation heads into an election and the business-friendly policies of President Benigno Aquino hang in the balance.

Troubles in China, a major buyer of goods from the region, as well as tepid recoveries in the US and the euro zone, are adding to the pain.

If there is a bright spot next year, economists say, it will be Indonesia, the region's largest economy, which is likely to lower interest rates, making borrowing cheaper. If the US Federal Reserve raises rates this month and the impact on the rupiah is minimal, many economists believe Bank Indonesia could find the breathing room to act.

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A version of this article appeared in the print edition of The Straits Times on December 08, 2015, with the headline S-E Asian nations 'face struggle to fuel growth'. Subscribe