Warnings of stagflation and recession abound among the advanced economies. However, there is one area of the globe where the economic prospects are brightening. Adrian Ashurst, CEO of Worldbox Intelligence, highlights precisely why the outlook for Southeast Asia looks so much better than most other areas of the globe.

Headlines across the world are warning of a return to the stagflation of the 1970s, that dismal era when high, often double-digit inflation coincided with low or even negative growth. The return of high inflation and the threat of recession are prompting these fears. In the US, for example, inflation reached a 40-year high of 8.6% (on an annual basis) in May. In the eurozone it surged to 8.1% during the same month.

Meanwhile, central banks across the globe are hiking interest rates. The sharp jump in borrowing costs that is likely to take place this year could well result in a recession in the US and other key economies. Goldman Sachs recently doubled the risk of the US entering a recession this year from 15% to 30%, and said there was a 48% probability of a recession over a two-year horizon. The prediction followed the Federal Reserve’s decision to hike interest rates by 75 basis points in June, the biggest rise since 1994. [1]

In the 1970s, two separate oil price shocks – in 1973 and 1979 – led to soaring inflation. Each time the global economy plunged into recession – defined as two consecutive quarters when the economy contracts in size.

Supply shocks have also caused the current problems. Firstly, the pandemic led to economic shutdowns around the globe. As economies opened up, demand has rocketed, and supply chains have yet to return to normal. When demand exceeds supply, prices inevitably shoot up. Russia’s invasion of Ukraine has caused a further massive global shock, disrupting the supply of key commodities such as oil and gas, wheat and fertiliser.

Southeast Asia powers back

South-east Asia, however, looks set to largely escape the stagflationary cycle of high inflation and falling growth, according to recent Financial Times analysis of government data. The FT found that in four of the region’s six biggest economies, GDP is rising faster than inflation. [2] The newspaper said that the economies of Vietnam, Malaysia, Indonesia and the Philippines are bouncing back as tourism recovers.

S&P, for example, recently forecast that Vietnam’s economy would expand by 6.9% this year. The ratings agency added that over the next 12 to 24 months, Vietnam’s economy will continue to recover from the challenges posed by the pandemic, and that the country should see long-term annual growth of 6.5 to 7% from 2023 onwards. [3] Earlier, HSBC lowered its forecast on Vietnam’s inflation rate in 2022 to 3.5% from its earlier prediction of 3.7% due to stable domestic food prices, which are expected to help curb the country’s headline inflation. [4]

Commodities provide boost

Meanwhile, the World Bank recently praised Malaysia’s relatively strong performance given the current global economic challenges. The organisation forecast economic growth of 5.5% this year, higher than the global growth of 2.9% and regional growth of 4.4%. The World Bank highlighted a gradual recovery in consumer spending and job creation. It also pointed out that high commodity prices benefit Malaysia because the country exports commodities such as palm oil, liquefied natural gas, and petroleum. [5] The central bank expects inflation to average between 2.2% and 3.2% in 2022. [6]

Indonesia leads

Indonesia is expected to be among the world’s strongest economies this year, according to the World Bank. It anticipates growth of 5.1% this year, again helped by high commodity prices of which the archipelago is a major exporter. [7] Core inflation is currently at 2.6%, comfortably within the central bank’s inflation target for the year. [8]

Real GDP growth in the Philippines accelerated to 8.3% in the first quarter, compared with 7.7% in the previous three months.  This stronger than expected expansion prompted Moody’s Analytics to hike its GDP growth to above 7% from 6.1% for this year.  That means the Philippines could emerge as the second-fastest growing economy in Asia-Pacific, after India, in 2022. Soaring global oil prices and elevated commodity prices pushed the country’s inflation to 5.4%  in May from 4.9% in April, bringing the average to 4.1%  in the first five months of the year, but still well below projected GDP growth.

Source: https://www.ft.com/content/d1d5f596-d8af-4fcf-a01a-25b9fec8e245?accessToken=zwAAAYGP_jffkdPR1fWW2K9Pz9OgGiW5_sjiRQ.MEQCIAL3QirHfMM-jST3PrDr3JaYjY1WmFOo1-FQbko-ASiSAiBZWVLSWjf0ykHNhZzlPVDPcaoT9Iwqx2fJetvUlTHH5g&sharetype=gift?token=1e03512e-8fef-461b-97dd-7f085234f758

Only in Thailand and Singapore has inflation climbed faster than gross domestic product growth. Real GDP grew by 1.5% in Thailand in 2021 and is projected to expand by about 3% in 2022, according to the most recent IMF assessment of the country released in June. But headline inflation is expected to average 6.1% in 2022 driven by high energy prices, well-above the Bank of Thailand’s upper target band of 3%.

However, the IMF expects growth to strengthen to 4.3% in 2023 with other analysts forecasting an expansion of over 5%. Growth should accelerate in the second half of this year as the tourism sector, a significant contributor to GDP, finally opens up. Restrictions on travel to Thailand were only fully lifted on July 1st. The central bank expects inflation to peak in the third quarter before returning to its target range of 1-3% early next year. [9]

Chicken rice “crisis”

Inflation in Singapore continues to climb, with headline inflation hitting 5.6 % in May, up from 5.4% in April and the highest level since 2011. [10] Singapore is highly dependent on imports of food and energy as well as other goods. The price of chicken, for example, recently surged in price in the island republic after Malaysia halted chicken exports in an effort to tackle a domestic shortage that has sent prices soaring. Chicken rice is a favourite meal in Singapore and the government is seeking alternative supplies from the likes of Indonesia. Singapore’s overall inflation is forecast to range between 4.5% and 5.5% this year, while core inflation is projected to average 2.5%-3.5%, according to officials.

Meanwhile, Singapore’s Ministry of Trade & Industry has maintained its 3 to 5% growth forecast for 2022, but warned that growth will likely come in at the lower half of the forecast range because of the impact of the war in Ukraine and China’s strict Covid-19 lockdowns. [11]The economy is expected to grow by 3% next year according to a survey of economists conducted by the city-state’s central bank. Both headline prices and core inflation are expected to ease in 2023, said the survey. [12]


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[1] https://www.ft.com/content/736f82b8-932c-408a-bc14-1fadf2f14aa9#comments-anchor
[2] https://www.ft.com/content/d1d5f596-d8af-4fcf-a01a-25b9fec8e245?accessToken=zwAAAYGP_JwCkdPR1fWW2K9Pz9OgGiW5_sjiRQ.MEUCIBaAznEEHFE1Aq9zvpJYVszlmFaZsEP55QNlc-Hn-cvpAiEAnU128eJ4E5czuHwP1c20B6mh0M92qwfpA2FKESVZCxg&sharetype=gift?token=1e03512e-8fef-461b-97dd-7f085234f758
[3] https://en.vietnamplus.vn/gp-global-ratings-raises-vietnams-sovereign-credit-rating/229266.vnp
[4] https://vir.com.vn/analysts-cut-vietnams-2022-inflation-forecast-94217.html
[5] https://www.theedgemarkets.com/article/malaysias-economy-doing-well-despite-global-economic-uncertainties-%E2%80%94-world-bank-economist
[6] https://www.bnm.gov.my/-/qb22q1_en_pr#:~:text=For%202022%2C%20in%20an%20environment,averaging%20between%202.0%20to%203.0%25.
[7] https://en.antaranews.com/news/233221/world-bank-deems-indonesias-economy-among-strongest-amid-global-risk
[8] https://think.ing.com/snaps/indonesia-bi-bucks-rate-hike-trend-amid-tame-inflation
[9] https://www.imf.org/en/News/Articles/2022/06/13/pr22195-imf-staff-completes-2022-article-iv-mission-to-thailand
[10] https://www.businesstimes.com.sg/government-economy/singapore-headline-inflation-hits-56-in-may-on-broad-based-increase-in-consumer
[11] https://www.mti.gov.sg/Newsroom/Press-Releases/2022/05/MTI-Maintains-2022-GDP-Growth-Forecast-at-3_0-to-5_0-Per-Cent#:~:text=5.0%20Per%20Cent%E2%80%9D-,MTI%20Maintains%202022%20GDP%20Growth%20Forecast%20at%20%E2%80%9C3.0%20to%205.0,half%20of%20the%20forecast%20range.
[12] https://www.reuters.com/markets/asia/singapore-cbank-poll-economists-sees-2023-gdp-growth-3-2022-03-09/