With real interest rates at record lows, governments and companies are expected to increase investment in assets and infrastructure, according to a new ICAEW report. Cheap money will allow countries in Asean to fund investments in public infrastructure, from transport links to education systems, while low returns in the financial markets are likely to prompt companies to invest in machinery, technology and skills instead.
The ICAEW report Economic Insight: Southeast Asia is produced by Cebr (The Center for Economics and Business Research), ICAEW’s partner and forecaster. Commissioned by ICAEW, it provides its more than 138,000 members with a current snapshot of the region’s economic performance. The report undertakes a quarterly review of Southeast Asian economies, with a focus on the six largest countries: Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
In a remarkable reversal of fortune, formerly risky countries like Indonesia and the Philippines now pay less to borrow from international capital markets than many Eurozone member states. Money has also become more affordable for Asean governments as investors have flocked to the region, looking to park their funds in safer public debt.
ICAEW economic advisor and Cebr’s head of Macroeconomics, Charles Davis, said: “With the availability of cheap money for Asean governments, we expect that public investment in needed infrastructure will increase this year.”
Cebr’s forecast for the average infrastructure investment growth between 2012 and 2014 is 5.2 percent for Thailand, on the back of reconstruction efforts after last year’s floods. Other Asean countries are also expected to increase infrastructure spending, Vietnam by 8.1 percent, Indonesia by 9.1 percent (focused on the mining sector and sectors serving household consumption), and Malaysia with 6.8 percent. Even Singapore, with the lowest infrastructure investment growth in the region, stands at a respectable 4.8 percent.
However, the global slump raises concerns for Asean, particularly due to the continuing uncertain situation in Europe, the slowing down of emerging markets like China, and the stalled US recovery. Singapore’s GDP has been downgraded substantially following the contraction of output in the second quarter, with an average growth of 2.2 percent expected in 2012 and a marginal increase to 2.5 percent in 2013. Countries like Thailand, Malaysia, the Philippines and Indonesia remain positive, however, with domestic demand continuing to fuel growth. Nevertheless, falling commodity prices and the falling remittance from overseas citizens may impact Indonesia and the Philippines respectively.
Mark Billington, regional director, ICAEW Southeast Asia, said: “With the slowdown in international markets, the inherent weakness of an industrial sector geared towards global trade becomes more obvious. The more closely linked to Western markets, the more affected the Asean economy in question will be. However, the story of a developing Asean continues, and we expect Asean will weather the global uncertainty well as a bloc.”