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Economic Overview of Southeast Asia
- Edited by Malcolm Cook, Daljit Singh
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- Book:
- Southeast Asian Affairs 2020
- Published by:
- ISEAS–Yusof Ishak Institute
- Published online:
- 24 November 2020
- Print publication:
- 22 April 2020, pp 19-42
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Summary
This chapter provides an overarching view of macroeconomic trends in Southeast Asia in 2019.
The current state of the regional economies is first assessed. In general, the regional economies had to face a troubled global environment but demonstrated an encouraging degree of resilience in doing so.
The cyclical prospects are then considered. Two key factors will drive the outlook for next year. The first is how the global economy pans out—especially whether an improvement in the trade picture allows a recovery in business confidence and capital spending. A second factor is the impact of supportive monetary and fiscal policies.
Finally, a review of developments this year that shaped key drivers of the secular regional outlook is conducted. Four key drivers are identified and are likely to be supportive of an improved growth outlook in the medium term—infrastructure spending, synergies from economic integration initiatives, production relocation out of China and an improved business ecosystem.
Section 1: Recent Trends in the Regional Economies
Two contrasting themes characterized economic developments in Southeast Asia in 2019—growing challenges and a surprising degree of resilience. The regional economies had to contend with a turbulent global environment in 2019. Global demand for Asian exports was subdued, depressing economic growth and commodity prices in a region that remains heavily trade-dependent. Nevertheless, the region demonstrated a degree of resilience: economic growth continued, albeit modestly, while external stability was maintained. This relatively benign outcome was partly the payoff to the improved capacity for policy response in the region—and it builds a good base for future economic performance.
A confluence of disturbances hurt the global economy in 2019. Global economic activity began to weaken from around the middle of 2018 onwards and the decline persisted through 2019. As a result, global economic growth eased, from 3.8 per cent in 2017 to 3.6 per cent in 2018 and then to an estimated 3.0 per cent in 2019 according to the International Monetary Fund (Figure 1). In parallel, the world economy saw a pronounced slowing in export demand (Figure 2). Not surprisingly, the World Trade Organization (WTO) became more cautious about world trade prospects.
5 - The Political Economy of Closer Relations: A Perspective from Singapore
- from Section II - Policy and Politics
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- By Manu Bhaskaran, Magdalene College
- Edited by Francis E. Hutchinson, Terence Chong
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- Book:
- The SIJORI Cross-Border Region
- Published by:
- ISEAS–Yusof Ishak Institute
- Published online:
- 22 July 2017
- Print publication:
- 14 June 2016, pp 125-153
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INTRODUCTION
The Singapore-Johor-Riau (SIJORI) Growth Triangle was first proposed on 20 December 1989 as an agreement between Singapore, Johor and the Riau Islands to exploit their geographical proximity and resource complementarity as a combined region. The idea behind the Growth Triangle was that Singapore's strengths in higher value manufacturing, world class infrastructure, financial resources and strong relationships with multinational companies (MNCs) would profitably complement Johor's and Riau's endowments in cheaper and more abundant land and labour. The development of SIJORI was to be led primarily by the private sector, with governments facilitating the flow of goods, services, investment and people. On 17 December 1994, this subregion was renamed the Indonesia-Malaysia-Singapore Growth Triangle (IMS-GT) and formalized with the signing of a Memorandum of Understanding.
In the SIJORI agreement, Singapore's dominance in the triangular partnership has been obvious and outsized — it has been the principal investor and major destination of trade flows. As costs in Singapore rise, the benefits of the agreement have become more telling. Yet, political issues remain a bugbear in further advancing this cooperation. Hence, as we discuss the merits of the SIJORI agreement, the main questions that must be answered are: Can Singapore become a global city like London or New York without having the immediate hinterland that those cities have? Can the three countries put aside their political differences for mutually beneficial growth? Can the Riau Island-Johor side of the triangle develop?
Currently, the factor endowments in the three regions differ. Singapore's strengths include its highly skilled labour force, well-developed infrastructure, and security and stability. However, it lacks land and other natural resources and its focus has thus been on high-value manufacturing and services. On the other hand, Johor and the Riau Islands both have an abundance of land and labour. Production is much cheaper than in Singapore but these two regions lack technology and capital inputs. Therefore, there may be potential synergies that could be unlocked in the agreement that would result in the region becoming competitive, productive and vibrant enough to compete with China. The advantages that we envision are: the re-allocation of land and labour for higher-value uses; increased scale and diversity; leveraging off each region's competitive advantage; and the benefits of increased competition.
Challenges Facing the Singapore Economy
- from SINGAPORE
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- By Manu Bhaskaran, Chief Executive Officer of Centennial Asia Advisors Pte. Ltd., Singapore
- Edited by Daljit Singh
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- Book:
- Southeast Asian Affairs 2014
- Published by:
- ISEAS–Yusof Ishak Institute
- Published online:
- 19 May 2017
- Print publication:
- 03 June 2014, pp 290-302
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Introduction and Summary
If the global economic recovery unfolds as expected, the Singapore economy should enjoy a reasonably good year in 2014 and beyond. The G3 economies to which Singapore remains highly geared are poised to recover in 2014 and build further momentum after that. Singapore's prospects are also boosted by the fact that it sits at the centre of a region that is enjoying a dramatic economic transformation. Even if China's growth slows a tad, its impact will remain powerful while the growth in India and ASEAN will add further vibrancy to Singapore's regional hub.
However, under the surface of this cyclical recovery are deeper challenges to which Singapore must adjust. Despite a supportive external environment, the easy phase of Singapore's rapid development is over. The key issue is that while Singapore's economy has certainly performed well, it has also had to face a number of structural issues in recent years:
• In the short to medium term, the impetus from the recovery in external demand will be offset by headwinds in the domestic economy arising out of necessary but potentially painful policy changes.
• Beyond this cyclical issue, an issue that has become a focus of policy concern is that of income inequality. Unlike in the past, where high economic growth filtered through to impressive gains in the living standards of the vast majority of Singaporeans, the translation of economic growth into broadly distributed welfare gains that the citizenry expects is proving harder to achieve.
• In addition, Singapore faces a number of challenges stemming from changing demographics. As the population ages and total fertility rates remain low, Singapore has to drive economic growth through productivity and innovation rather than adding more workers. But it is not clear if Singapore has enough of the pre-requisites to execute such a transition. Moreover, it is not clear that the existing arrangements for healthcare support and retirement funding are adequate to the task.
• Finally, Singapore's competitiveness is being challenged. Costs in Singapore have risen ahead of its competitors, directly undermining Singapore's competitiveness. More significantly, there are potential challenges for Singapore's status as one of Asia's pre-eminent regional hubs.
This chapter aims to set out these challenges and assess their likely impact on the Singapore economy. It will consider each of these challenges in turn before concluding with an assessment of their implications.
4 - The Asean Economic Community: The Investment Climate
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- By Manu Bhaskaran, Centennial Group, Singapore
- Edited by Sanchita Basu Das, Jayant Menon, Rodolfo C. Severino, Omkar Lal Shrestha
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- Book:
- The ASEAN Economic Community
- Published by:
- ISEAS–Yusof Ishak Institute
- Published online:
- 21 October 2015
- Print publication:
- 28 November 2013, pp 141-206
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Chapter 15 - The Giant Neighbor: Why is China Important?
- from Section II - State Relations
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- By Manu Bhaskaran, Washington, DC
- Edited by Adil Najam, Moeed Yusuf
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- Book:
- South Asia 2060
- Published by:
- Anthem Press
- Published online:
- 05 September 2013
- Print publication:
- 15 July 2013, pp 114-120
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5 - The Investment Dimension of ASEAN
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- By Manu Bhaskaran, Centennial Group Inc., Singapore
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- Book:
- ASEAN Economic Community Scorecard
- Published by:
- ISEAS–Yusof Ishak Institute
- Published online:
- 21 October 2015
- Print publication:
- 06 May 2013, pp 79-106
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Summary
I. Introduction
This chapter focuses on the investment dimension of the ASEAN Economic Community (AEC). The first section studies recent patterns and trends in foreign and domestic investment in the region. The key finding is that these trends have been largely disappointing. The second section examines the underlying factors that might explain the disappointing performance. There appears to be a disjuncture between the relatively good fundamentals for investment in the region and the actual outcome, a disjuncture mainly related to country-specific weaknesses in the investment climate. The third section assesses the progress in implementation of the AEC and finds that despite progress, implementation leaves much to be achieved before the 2015 target. The final section presents some recommendations as to what could be done to improve the situation. I believe that a key thrust must be to create economies of scale so as to boost ASEAN's competitiveness in attracting investment relative to the large dynamic economies of China and India.
II. Weakening FDI and Domestic Investment in ASEAN
Attracting foreign investment has been an important component of the growth strategies of most ASEAN countries. In assessing the overall investment climate in ASEAN, we begin with an analysis of FDI trends before studying domestic investment.
ASEAN's Share of FDI Flows has Declined
Despite numerous attempts and initiatives to foster the appropriate investment climate for foreign investors, ASEAN as a whole continues to struggle in raising inward FDI beyond levels achieved prior to the Asian financial crisis of 1997–98. Figure 5.1 shows ASEAN's share of the stock of global FDI over the past three decades; this share rose to a peak of more than 5 per cent just before the financial crisis of 1997, and although it has been rising over the past few years, ASEAN's stock of world FDI has not reached its 1996 level. In terms of the annual flow of FDI, ASEAN's share has ebbed significantly in the 2000s from an average of 8 per cent in the mid-1990s before recovering to about 6 per cent in 2010.
An area of concern is ASEAN's declining proportion of both stock and flow of FDI within developing countries.
Review of Southeast Asian Economic Developments
- from THE REGION
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- By Manu Bhaskaran, Partner and Member of the Board, Centennial Group, Singapore
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- Book:
- Southeast Asian Affairs 2010
- Published by:
- ISEAS–Yusof Ishak Institute
- Published online:
- 21 October 2015
- Print publication:
- 18 May 2010, pp 23-43
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Introduction and Summary
Southeast Asian economies are integrated into the world economy through multiple channels and remain sufficiently exposed to the G-3 (European Union, Japan, United States) economies that they could not escape a substantial hit from the global financial crisis. Our views can be summarized as follows:
• What is striking about the regional economies then was their surprising resilience — GDP growth is on track for a robust rebound, reversing the global impact fairly quickly. We believe that this improved resilience springs from important structural changes in the region since the Asian financial crisis of 1997–98. In particular, policy changes have strengthened macroeconomic frameworks and banking sectors while also allowing some degree of diversification of the economic base.
• The regional economies are thus poised for a strong rebound, even with a global environment that is likely to remain troubled and occasionally subject to financial stresses. However, these global level risks are not likely to result in a double-dip slowdown in Southeast Asia — external demand is recovering and the lagged effects of monetary and fiscal easing will support growth.
• The real challenge in Southeast Asia is to build economic resilience and prepare for a global economy that will be substantially different from the pre-crisis era.
Impact of the Global Crisis
(a) Global Crisis Hurt but Region Displayed More Resilience Than Expected
Two features of the performance of Southeast Asian economies in 2009 stand out: First, the crisis showed how intricately integrated the region is with the global economy and, in particular, with the United States, European Union, and Japan. Second, despite this, their economies have developed greater resilience to external shocks as seen in the speed with which their economies have rebounded.
As Table 1 shows, most Southeast Asian economies suffered a sharp deceleration in economic growth as the global crisis spread. However, the recovery came fairly quickly, meaning that the recessionary impact of the global crisis on Southeast Asia was mostly limited in duration.
This initially severe impact of the crisis suggests little evidence for the decoupling that many had hoped for.
The Regional Economies: A Year of Growth, Stability, and Resilience
- from THE REGION
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- By Manu Bhaskaran, Economic Research Centennial Group
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- Book:
- Southeast Asian Affairs 2007
- Published by:
- ISEAS–Yusof Ishak Institute
- Published online:
- 21 October 2015
- Print publication:
- 28 May 2007, pp 31-58
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Summary
For Southeast Asian economies, the year 2006 was marked by vibrant growth, improving economic stability, and an unexpected degree of resilience to external and domestic shocks. In this sense, it can be said that 2006 was one of the best years for the regional economies since the Asian financial crisis erupted in 1997.
This article is divided into two main sections. In the first, we take a pan- regional approach, reviewing the main factors that drove growth in the region, assessing the sustainability of the improved stability indicators and analysing the reasons for the improved resilience. In the second section, we will review the progress of economies in the core ASEAN region, focusing on these because of the considerably better data available.
Economic Growth was Driven Significantly by External Demand
Table 1 sets out the economic performance of the region in 2006 compared with recent history. In general, growth in gross domestic product (GDP) across the region picked up momentum from 2005, with the first half of 2006 showing particular strength. However, economic data for the second half of the year showed some loss of momentum, though not a serious one.
Table 2 brings this out more clearly for those economies where quarterly data is available. Except for Indonesia, growth momentum began to flag a little in the third quarter. Several features of economic growth in 2006 merit comment.
First, the region's competitive positioning in global exports has been maintained despite the emergence of strong new competitors such as China. As Figure 1 shows, ASEAN's share of global exports has stayed above 6 per cent in recent years. This helped the region to benefit from the strength in external demand. The World Bank 2 estimates that global output growth increased to 3.9 per cent in 2006 from 3.5 per cent in 2005 and 3.0 per cent in 1980– 2000. World trade volume grew by a probable 9.7 per cent in 2006 compared with 7.7 per cent in 2005.
Regional Economic Trends
- from ECONOMIC OUTLOOK
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- Book:
- Regional Outlook
- Published by:
- ISEAS–Yusof Ishak Institute
- Published online:
- 21 October 2015
- Print publication:
- 03 January 2007, pp 63-78
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Summary
Southeast Asian economies have weathered recent challenges in the global economic environment well, partly helped by the strongest global economic growth in years. As the regional economies move into 2007, the global economic headwinds are increasing as the U.S. economy slows and as the risks of a disorderly unwinding of global imbalances increase. Fortunately, Southeast Asia appears to also have some positive internal factors that can help mitigate risks emanating from the global environment.
Global Environment Likely to Be Less Supportive of Regional Growth Prospects
There are several reasons to believe that global demand for Southeast Asian exports will decelerate as we move into 2007. First, there are clear signs of a global economic slowdown. The latest OECD (Organization for Economic Cooperation and Development) lead indicators point to slower growth in at least the early part of 2007 in almost all the major developed economies. Although there is no strong consensus on just how much the U.S. economy will slow down, it is quite clear that the U.S. housing boom is ending in a way that will hurt U.S. growth: the risks are clearly to the downside in the United States whereas growth in Europe and Japan will probably decelerate by less. A crucial variable here is global demand for electronic components since this is the single most important export for most Southeast Asian economies: available lead indicators point to only a manageable moderation in demand, not a significant fall.
REGIONAL ECONOMIC TRENDS
• Prospects for Southeast Asian economies are positive in 2007 despite some risks to global demand.
• Slower U.S. growth, the lagged impact of tighter monetary conditions globally and the risks posed by unresolved global imbalances are concerns.
• Nevertheless, Southeast Asia is in a far stronger position now than it has been for a long time: Japan's recovery is a help as is the region's renewed attractiveness as a location for outsourced production of goods and services.
Second, the lagged impact of tighter monetary policies as well as of higher energy prices is still only just feeding through to global economic activity.
The Economic Impact of China and India on Southeast Asia
- from THE REGION
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- By Manu Bhaskaran, Institute of Policy Studies, Singapore
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- Book:
- Southeast Asian Affairs 2005
- Published by:
- ISEAS–Yusof Ishak Institute
- Published online:
- 21 October 2015
- Print publication:
- 16 May 2005, pp 62-81
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Summary
Introduction
China's growing economic clout is increasingly felt in Southeast Asia. Competition has intensified in trade and foreign direct investment (FDI). Many companies in the region are finding it hard to compete against the lower prices offered by Chinese competitors. At the same time, China's voracious appetite for imports and the growing numbers of Chinese tourists have also brought good news. Just as the region is adjusting to China's growing economic presence, it is also now evident that India is also casting a potentially competitive shadow over Southeast Asian economies — it is beginning to attract more FDI and it is clearly highly competitive in several service activities.
This chapter will argue that the emergence of China and India will precipitate substantial policy and micro-level changes to the region. These adjustments will help Southeast Asian economies to respond to the growing competition and so permit them to find their own niches in the emerging new division of labour. In the process, there will be many winners and quite a few losers in the region. Whether the balance is a net positive or a net negative will depend on how effectively each country adjusts to the more competitive world that China and India create. It is argued here that the winners will be those countries that have the political will to reinvent policies and the entrepreneurial capacity to adapt and re-engineer the microeconomy.
This chapter will begin with a review of how China and India have affected the regional economies in trade, investment and other economic areas. It will then review how these countries are adjusting to this new world and conclude with an assessment of what the net impact would be on economic growth and development in the region.
Recent Economic Trends
Goods Trade: China's Increased Share of Exports not at Region's Expense
Recent trends in global exports of merchandise goods and of services are presented in Figures 1 and 2 and Table 1. A number of important features stand out:
• Both China and Southeast Asia increased their share of global merchandise exports in 1990–2002.[…]
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