Asia Economic Notes：ASEAN's policy considerations

DeutscheBankResearch Asia Economics AsiaEconomicNotes Date 28March2024 ASEAN'spolicyconsiderations Belowtrendgrowthandinflationcallforsupport,but... ASEANeconomiesarefacingeitheracyclicalturnorastructuralchallengethatispromptingthemtoreassesstheirpolicystanceortheleveloftheirneutralrates.Formany,concernsoverFXstabilitystandintheway-althougharecoveryinexportsprovidebettersupport-with"bumps"ininflationaddingtotheirconcerns,albeittemporarily.AlthoughFDIinflowstoASEANeconomiesfacedheadwindslastyear,theregionhasremainedafavoredinvestmentdestinationformanufacturingMNCs. Althoughitsexportshavebenefitedsignificantlyfromthecommoditypriceboominrecentyears–fromcoal,ironandsteeltoorganicchemicals–Indonesiahasalsoenjoyedanotableriseintheexportofelectricalmachineryandapparatusandvehicles.(Figure3) JulianaLee ChiefEconomist +65-6423-5203 Figure1:Relativeperformanceonpassengervehiclesales Figure2:Relativelyrapidriseinfacilityinvestment pa 200 150 100 50 IndonesiaAuto 300 250 200 150 100 50 2010=100Facility ssengersales(2016=100,12mma) Malaysia PhilippinesThailandChina Exports IDPCE(rhs) 220 200 180 160 140 120 220 200 180 160 140 120 00 161718192021222324 100 151617181920212223 100 Distributedon:27/03/202423:32:06GMT Source:CEIC,DeutscheBankResearch Source:CEIC,DeutscheBankResearch Indonesia'ssuccessinattractingFDI(indown-streaming)inEVs(batteries)hascontinuedtobroaden.HyundaiLGIndustryGreenPowerwillbeginbatterymanufactureforEVsnextmonth,withthecapacitytoproduceenoughbatterycellsfor150kEVs.CATLisbuildingEV-batteryfactories,whileBYDexpectstobreakgroundforitsownlaterthisyear.DatasuggestthatacyclicalpeakinASEAN'spassenger-vehiclesalesmayhavepassed,whilethoseinadvancedAsiaareinclear DeutscheBankAG/HongKong IMPORTANTRESEARCHDISCLOSURESANDANALYSTCERTIFICATIONSLOCATEDINAPPENDIX1.MCI(P)041/10/2023.UNTIL19thMARCH2021INCOMPLETEDISCLOSUREINFORMATIONMAYHAVEBEENDISPLAYED,PLEASESEEAPPENDIX1FORFURTHERDETAILS. 7T2se3r0Ot6kwoPa decline.Incontrast,salesinIndiahavecontinuedtosurge,whiletheyreboundinChina.(Figure1)FDIinflowshavesupportedindonesia'sinvestments,enjoyingasignificantboostinmachineryandequipmentinvestment.(Figure11andFigure12)Thelatterhasrisen29%aboveitspre-pandemic(2019)level,laggingslightlybehindthe31%riseinexportsduringthesameperiod.Meanwhile,constructioninvestmentrecoveredmoremodestly,standingonly3%aboveits2019level,whileconsumptionstood9%above.Consumptiongrowthstandsslightlybelowthepre-Covidperiodrateof5%.(Figure2) Figure3:Indonesia'sexportsbygoods Figure4:ElectronicsPMIcrawlinghigher USDbn8.0 6.0 4.0 2.0 0.0 ID:MineralFuels Mfggoods,includingiron&steelMachinery&transportationeqmt(rhs) USDbn 4.0 2.0 0.0 PMIElectronics65 ElectronicPMI Communication Computing 60 55 50 45 40 151617181920212223 181920212223 Source:CEIC,DeutscheBankResearch Source:CEIC,DeutscheBankResearch Globalelectronics'PMIscontinuetocrawlhigher,ledbycommunicationandcomputingequipment,bodingwellforeconomiesthatarehighlygearedtothosesectors.Figure4)DatapointtoamorenotablerecoveryinMalaysia'sexportsahead,includinginE&Eexports.(Figure5)Malaysia'sE&Emakesupabout40%ofitstotalexports(in2023),withelectricalmachineryresponsibleforabout30%,whileofficemachineryandmobileequipmentmakeuptheremainder,equally. Figure5:MAPMIpointstoexportrecovery Figure6:PHexportsrelyheavilyonelectronics Index%yoy3mma %PH:Electronicsshareoftotalexports MA ExportsE&E Exports E&Eimports 55 50 45 40 35 1920212223 60 40 20 0 -20 -40 70% 60% 50% 40% 30% Semiconductorsshare 2223 Source:CEIC,DeutscheBankResearch Source:CEIC,DeutscheBankResearch MalaysiaalsoenjoyedasharpriseinFDIinflow,intoitsmanufacturingsector,representingabout20%ofitsgrossfixedcapitalformationin2021/22.Itsconstructioninvestmentfacesstructuralheadwinds,givenitshighlyleveragedhouseholds,whosesavings(pension)weretappedforconsumptionduringtheCovidpandemic,withtheconsumptionshareofGDPrisingabout2pptstoc.61% ofGDPin2023.Moreover,BNM'sincreasedsensitivityovertheringgitfurthercementsourforecastofnoratecutsbythecentralbankfortheforeseeablefuture. Duringhertriptothecountryearlierthismonth,theUSCommerceSecretarycalledforthedoublingofthesizeofthePhilippines'chipindustry,toreduceconcentrationinthesector'ssupplychain.Notethatsemiconductorsaccountforabout45%oftotalexports,whiletheentireelectronicssharestandsat57%ofthetotal.Figure 6)Whiletherecoveryinelectronicexportsbodeswellfortheeconomy,elevatedborrowingcostsweighonitsdomesticdemand.Whileratecutswouldhelp,theBSPremainscautious,givensustainedpressureonthepeso,despitesomenarrowingofitstradedeficitandlowerinflationarypressure.WeseeitwaitingfortheFed'sratecutsbeforebeginningitsown.Althoughconstructioninvestmentremainsbelowpre-pandemiclevels,ithascontinuedtotrendhigher,withnosignofpeaking,givenitspositivepopulationprojections. Figure7:ThaimfgPMIcontinuestofall Figure8:Thailand'spublicspendingweakness PMImfg TH VN 65 60 55 50 45 40 IDMAPH 2010=100 Privatedomesticdemand 160 140 120 100 Publicdomesticdemand 35 212223 212223 Source:CEIC,DeutscheBankResea