In 2024, the growth outlook for the region is positive.
On 8 April, the Macroeconomic Research Office (AMRO) of ASEAN, China, Japan and South Korea (ASEAN+3) released its flagship annual report, ASEAN+3 Economic Outlook 2024. The report forecasts that ASEAN+3 economic growth will increase to 4.5% this year from 4.3% in 2023. The region's economy will expand at a rate of 4.2% in 2025.
According to the report, the strong growth in the ASEAN+3 region this year is mainly due to strong domestic demand, driven by rising household incomes and reviving investment activity. At the same time, the rising global chip cycle will prompt a rebound in exports, while the continued recovery in tourism will provide additional impetus.
However, trend growth remains below pre-pandemic levels in most economies in the region, and the recovery in capital formation has been particularly weak. Risks such as a sudden rise in global commodity prices, spillovers from the U.S. election, and a sharp slowdown in growth in Europe and the United States could affect the region's growth environment, the report said.
The report argues that in the future, fiscal policy should prioritize restoring buffers and providing targeted support to the economy. Given the risk of continued upside inflation, monetary policy must focus on anchoring inflation expectations.
In response to a question from CBN, Hoe Ee Khor, chief economist of AMRO, said that due to the large fiscal spending in previous years, the fiscal space of ASEAN+3 economies has shrunk, but it is still enough to withstand shocks and support the economy. "However, we are optimistic about the region's economic growth this year, so there is little need for fiscal support, and the focus should be on restoring fiscal space. He said.
"We believe that the priority is fiscal consolidation, and it may be necessary to provide targeted fiscal support to certain sectors," Xu said. At the same time, the focus should also shift to capital formation investment to build infrastructure for the new economy. ”
ASEAN+3 remains the engine of the global economy
ASEAN+3 will remain the main driver of global growth, contributing around 45% to global growth, slightly higher than the pre-pandemic average of 44.5%, the report said.
This growth trajectory will be driven primarily by China, Japan and South Korea, with economic contributions accounting for three-quarters. The report predicts that in 2024, growth in the region, China, Japan, and South Korea will be led by China and South Korea. Japan's gross domestic product (GDP) growth is expected to slow due to the weakening of the pandemic's growth momentum.
In the ASEAN region, the ASEAN-6 countries (Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam) will continue to grow at 4.9 percent, contributing an average of 10 percent to global growth over the period 2024-2030. With the exception of Myanmar, GDP growth is expected to improve in 2024 in most ASEAN economies. The rebound in merchandise exports, as well as strong domestic demand, will continue to drive growth in the region. Tourism will also return to pre-pandemic levels.
Headline inflation in ASEAN+3 economies is expected to trend downward, from 6.3% in 2023 to 3.7% in 2025, as global commodity prices stabilize. However, inflation in some economies in the region is likely to remain above the long-term average as strong domestic demand puts upward pressure on prices.
In the medium term, ASEAN+3 is expected to grow at an average rate of 4.4% from 2024 to 2030, outpacing the global growth rate but slowing from the average growth rate of 5.3% from 2011 to 2019. This is because the region's middle-income and developing economies tend to converge with the potential growth rates of advanced economies as they move towards the frontier of production possibilities.
According to the report, ASEAN+3's overall growth will be driven by a gradual recovery in external demand and a recovery in domestic demand. As the shocks that have impacted the global economy over the past few years begin to subside, the operating environment underpinning the region's outlook in 2024 and 2025 is expected to be more favourable.
The report highlights that the semiconductor cycle, which has seen a severe decline over the past few years, is expected to improve, which will benefit major semiconductor exporters in the region. Global semiconductor sales growth shrank by 9.4% last year, hitting a four-year low, and is expected to rebound by 13.1% in 2024. According to the report, the coming recovery is partly driven by replacement cycles, where manufacturers and consumers need to replace older equipment. The growing demand for highly advanced chips such as automotive intelligence, high-performance computing, and artificial intelligence will also drive the economic recovery. In the process, economies that can quickly expand their existing capacity to high-performance chips can benefit from this growing demand.
In addition, continued demand for exports from ASEAN+3 economies from major economies, especially the United States, and an overall recovery in tourism activity are expected to further support overall external demand. At the same time, domestic demand in ASEAN+3 economies is expected to remain strong, driven by a return to private investment and a recovery in private consumption.
In the short to medium term, the region will need to contend with a more challenging external environment, the report said. However, these problems were partially offset by continued strong domestic demand and support from the region.
Three trending challenges and opportunities
AMRO pointed out that ASEAN+3 economies are facing three long-term transformation trends: population ageing, global trade restructuring and technological change, and called for closer cooperation among economies. Despite the risks associated with these structural shifts, they have also created new sources of growth and productivity gains, the report said. ASEAN+3 should strike a balance between risks and opportunities in order to achieve sustainable, resilient and inclusive growth in the long term.
According to the report, ASEAN+3 economies are aging at a faster rate than in many parts of the world. The total working-age population in ASEAN+3 is expected to shrink in the second half of 2020-2030, which will have a negative impact on the region's growth potential, macroeconomic stability, and sustainability of public finances. However, these consequences can be avoided to some extent if measures are taken to allow the population to ageing in a productive manner.
Policies that support and promote healthy longevity could enable about 200 million workers in the region to rejoin the labour market by 2050, taking into account healthier life expectancy in ASEAN+3, the report said.
"Population ageing poses a major challenge to the ASEAN+3 region," said Allen Ng, head of the AMRO regional monitoring team and one of the report's authors, "but the region's population is also living longer and healthier." Adapting to this longevity dividend, enabling our population to achieve beneficial ageing is critical to the region's future. ”
In terms of global trade restructuring, the report argues that this has important implications for the long-term export strategy of ASEAN+3 economies. Geopolitical dynamics are increasingly shaping global trade relations and creating new trade opportunities for ASEAN+3 economies that can quickly leverage their comparative advantage. At the same time, trade in the region is concentrated in fewer trading partners, which could reduce economic security in the face of more uncertainty in the world economy.
On the other hand, ASEAN+3 economies can take advantage of cross-border trade in services, especially modern and digitally delivered services, to provide important opportunities for growth and diversification. Growing trade in services, especially digital delivery, is providing new and inclusive growth drivers, the report said. With the support of continuous technological progress, the future of global trade in services is bright. As digital delivery models continue to increase, technical barriers to trade are rapidly decreasing.
In addition, the barriers to entry into the services value chain in many developing economies are not high, as digital delivery of services does not require the large amount of physical capital required for manufacturing and trade in goods. Deepening trade in services, especially within the ASEAN+3 region, can open up new avenues for growth. The report stresses that the role of the Regional Comprehensive Economic Partnership (RCEP) in the next generation of trade agreements should not be underestimated.
Against the backdrop of the rapid development of generative artificial intelligence (Gen AI), the report says that the ASEAN+3 region can leverage the solutions brought by technology to address the current demographic transition and global trade restructuring challenges. Technological advances in healthcare, automation, and work and learning platforms are critical to the productive development of an ageing population. Advanced production technologies and smart logistics will also help to make regional supply chains highly flexible in responding to sudden shocks.
(This article is from Yicai)