Southeast Asia: The Economic Outlook for 2024

As the year draws to a close, Adrian Ashurst, CEO of WorldBox Intelligence, explores the economic outlook for Southeast Asia in 2024.

Hopes that China would rapidly rebound from its pandemic lockdowns and power growth in Southeast Asia seem like a distant memory. Yet it was only back in April that the International Monetary Fund (IMF) was forecasting that Asia, led by China, would decouple and move ahead from the advanced Western economies. In reality, China’s growth has been much less dynamic than expected, weighed down by a property crisis and other problems.

Indeed, the World Bank is now warning that Asia faces one of the worst economic outlooks in half a century. The Bank forecasts that China will grow by just 4.4% in 2024, which would be one of the lowest rates of expansion since the 1960s. It points to tumbling retail sales, stagnant house prices, increased household debt and lagging private-sector investment as the main causes of this slowdown.

The Bank argues, too, that new US industrial and trade policies under the Inflation Reduction Act (IRA) and the Chips and Science Act are hitting Southeast Asia. The region benefitted from Sino-US trade tensions, which caused manufacturers to relocate production from China to the likes of Vietnam and Thailand. However, the introduction of the IRA and Chips laws in 2022 – policies designed to boost US manufacturing and cut American dependence on China – has hit Southeast Asian countries, says the Bank.

Enviable growth expected in 2024

Despite these gloomy predictions, Southeast Asia will remain one of the most dynamic regions of the world. In its November 2023 World Economic Outlook, the IMF, for example, forecast that while the advanced economies would grow by just 1.5% in 2024, the major Southeast Asian economies would expand at a much faster pace. The IMF foresees growth of 5.9% in the Philippines, 5% in Indonesia, 4.7% in Vietnam, 2.7% in Thailand, and 4% in Malaysia.1

Meanwhile, Singapore is forecast to shake off the stagnation it has suffered for most of 2023 and grow at a faster pace in 2024, according to the central bank. Recovering global demand for Singapore’s exports and the turning of the interest-rate cycle should provide support. Most analysts predict that major central banks such as the Federal Reserve and the European Central Bank will start gradually reducing interest rates in 2024. Singapore’s export-led manufacturing sector has been in the doldrums since late 2022 as global demand for electronic goods has slumped in response to rising prices and interest-rate hikes.

Vietnam scales the hi-tech ladder

Elsewhere, high-tech exports are fuelling Vietnam’s economic growth. In 2022, the country overtook South Korea to become the US’s sixth-largest trade partner by export value. Although Biden’s IRA policies may have hurt Vietnam and other Southeast Asian economies, the region is still attracting vast amounts of foreign direct investment (FDI) from companies keen to establish low-cost manufacturing bases outside China.

By the end of 2023, the assembly of many Apple products will take place in Vietnam. Luxshare, one of Apple’s largest Chinese component and finished product makers, is investing heavily in Vietnam, including around US$500 million in a plant in the northern Bac Giang province, which will employ tens of thousands of workers.

By contrast, domestic demand will prove the main driver of the Indonesian economy. While Vietnam has a trade-to-GDP ratio of 200%, the figure in Indonesia is just 35%. Liberalisation will be required if Indonesia is to achieve its goal of becoming a major global economy, but in the short term its dependence on domestic demand will provide protection from slowing global growth. Higher government spending in the run-up to the 2024 presidential election should spur domestic demand.

Thailand is likely to be among the weaker ASEAN economies in 2024. The economy continued to slow in the July to September quarter from a year earlier, with growth slipping to 1.5%. Exports of goods declined by 3.1% in the quarter, while exports of services increased by 23.1%, reflecting an increase in the number of foreign tourists. Solid private consumption and a recovery in tourism prevented an even more disappointing performance by Southeast Asia’s second-largest economy.

The National Economic and Social Development Council forecasts that the Thai economy will grow by 2.5% this year, the lower end of a previous forecast range of 2.5% to 3.0%, and slightly lower than the 2.6% expansion seen in 2022. Growth could be higher next year if the government is able to enact its digital-wallet stimulus, which must be passed into law by parliament and overcome potential legal challenges. The policy would inject 500 billion baht (US$14 billion) into the economy through 10,000 baht (US$285) handouts to 50 million people. The recipients would be required to spend the money in their localities within six months.

Figure 1: Thai economic growth slows in 2023

Source: https://www.reuters.com/markets/asia/thai-q3-gdp-growth-misses-forecast-amid-exports-slowdown-2023-11-20/

As with Thailand, Malaysia has experienced considerable political turbulence in recent years and also has a new government seeking to find its feet. Unlike Thailand, however, growth in Malaysia is accelerating and is expected to meet the government’s target of 4% this year, driven by strong domestic spending, improving labour-market conditions, and rising tourism spending. The government expects that the economy will expand by between 4% and 5% in 2024. Malaysia forecasts that the technology cycle will pick up next year, boosting the electronics sector, with semiconductors alone accounting for around 7% of GDP.

Among the smaller ASEAN economies, Cambodia is expected to expand by 6.1% in 2024, supported by domestic demand, according to the IMF. Meanwhile, the organisation predicts that revenue from tourism, foreign investment and exports will help Laos’ struggling economy grow by 4% in 2024. Brunei should grow by around 3.5% as the oil and gas sector revives. The expanding civil war in Myanmar will continue to overwhelm that country’s economy.

Overall, most ASEAN countries should enjoy another year of strong growth despite the continuing travails of China and further weakness in the advanced economies. WorldBox Intelligence anticipates that growth will accelerate in the second half of the year as monetary policy is loosened in the advanced economies.

Source: WORLDBOX PRESS RELEASE DECEMBER 2023

SOURCES

1. https://www.imf.org/en/Publications/WEO/Issues/2023/10/10/world-economic-outlook-october-2023

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