South-east Asia faces tough road to stronger growth with high debt and weak exports

Workers at a wig factory in Purwokerto, Central Java, Indonesia.
Workers at a wig factory in Purwokerto, Central Java, Indonesia. PHOTO: BLOOMBERG

JAKARTA (REUTERS) - Stronger-than-expected growth in some South-east Asian economies has sparked optimism that the worst of a slowdown may be over, but high debt and weak exports make sustaining the momentum a challenge for policymakers as US interest rates go up.

The Philippines wrapped up the region's third-quarter GDP performance on Thursday with annual growth of 6 per cent, up from 5.8 per cent in the second quarter.

Annual growth also picked up in Indonesia and Thailand, the region's two largest economies, taking weighted average growth in the region of some 500 million people with a combined GDP of US$2.2 trillion (S$3.1 trillion) to 4.2 per cent, according to Capital Economics.

Officials from Bangkok to Jakarta have been quick to seize on the improved growth numbers and consumer confidence as evidence the worst slowdown since the 2009 crisis is over.

"We think growth in the third quarter is a turning point,"said Indonesian central bank governor Agus Martowardojo. Economists and businesses hold a less sanguine view.

China's slowdown and recession in Japan, both leading markets for the region, high consumer and corporate debt at home and the risk of more market ructions when the US raises interest rates, are all clouding prospects ahead.

"It's too early to call a trough," said economist Joseph Incalcaterra at HSBC in Singapore. "We forecast growth in the fourth quarter to be weaker just about everywhere."

Mr Araya Sawaengwong, 48, who owns a small music shop in a Bangkok mall, said the economy was in bad shape.

"I'm struggling to sell my stuff as there are not many buyers these days. Buyers now become sellers competing to sell things but nobody wants to buy. I don't think things are getting any better."

Economic growth has been deceptively underpinned by a fall in imports rather than strength in exports for some countries. Indonesia's exports in the third quarter fell 0.7 per cent from a year earlier, but external demand still contributed 1.2 percentage points to the economy's 4.7 per cent growth as imports tumbled by 6.1 per cent.

Sliding prices of commodities that account for around half of Indonesia's total exports have crimped incomes and depressed domestic activity, in turn, hitting imports.

"From an accounting perspective, this gives the appearance that growth is stronger than it actually is," Mr Incalcaterra said.

In Thailand, the external sector's large contribution to the economy's 2.9 per cent expansion was mostly due to a drop in imports, as investment shrank for the first time since early 2014. Without the lift from net exports, South-east Asia's second-largest economy would have grown by just 0.1 per cent.

Net exports dragged on Singapore's performance, but it still grew 1.9 per cent in the third quarter from a year earlier, helped by spending on its 50th anniversary celebrations and a boost from inventories.

The data may show a growth pick-up in most of the major South-east Asian economies, but exporters say there was no significant change in demand in the third quarter.

"We export to Asean countries and Australia and (demand in the) third quarter was still pretty flat," said Mr Sancoyo Antarikso, director at PT Unilever Indonesia Tbk, which exports consumer items such as shampoo and soap.

While additional monetary stimulus could still be deployed to bolster growth, policymakers are wary about capital outflows when US rates rise.

There are also limits to what fiscal stimulus can do to counter sluggish global trade.

"Growth will remain weak for the next two quarters until we start seeing signs of a broader pick-up outside Asean," said Mr Incalcaterra.