Critics also argue more needs to be done in regards to eight professions tapped to head the AEC free trade regime – doctors, nurses, dentists, engineers, architects, surveying, tourism and accountants – in terms of liberalisation, particularly the movement of labour.
“With the AEC in general there still seems to be a long way to go,” says Michael Smiddy, a senior economist with Emerging Markets Consulting (EMC). “They’ve made a lot of progress but to see meaningful impact we need a lot more done.”
The 2025 Blueprint focuses on the liberalisation of trade, finance, skilled labour, taxation, and research and development. Critics argue meaningful reform is being stymied by vested interests.
“The free movement of people is a difficult one… less palatable,” Smiddy said. “The AEC was never going to be like the EU, particularly in regards to certain skilled occupations.”
He said this was complicated by education standards, noting that qualified Cambodian nurses, like many others, still have to sit exams in Thailand if they are to work there.
The biggest issue confronting ASEAN is its diversity: ethnicity, religion – Christianity, Buddhism, Hinduism, Islam and atheism – and political make-up – democracy, military rule and communism.
“Their intent is positive, it’s all good stuff but you’ve got a lot of countries, a lot of bureaucracies, and a lot red tape to get through. But on the whole greater integration is a net positive,” Smiddy said, noting ASEAN economies were still driven by local fundamentals.
Of the five original members of ASEAN, Indonesia and Thailand are expected to hold national elections in the first half of this year while the Philippines will conduct mid-term elections, adding political clarity on the regional economic front.
High inflation, a week currency and increased excise taxes have hurt the Philippines, which is also struggling to recover from typhoon damage. However its economy will continue to be buttressed by remittances from its massive overseas workforce.
For Thailand, which Moody’s Investors Service says faces “high political risks”, the ballot will end more than four years of military rule and result in a return to badly need economic reforms ranging from infrastructure upgrades to skills training and a more equal distribution of wealth.
In Indonesia, where rising debt is a concern, reforms put in place by the current administration to improve competitiveness and spending on social services are expected to kick-in post-election, when a free trade deal with Australia could finally be signed-off.
Mathur says Asian central banks were more relaxed regarding monetary policy with the US Federal Reserve entering the final stages of the its rate tightening cycle and a single 25 basis-point hikes was expected in Thailand and Indonesia.
But he added trade tensions remain a source of volatility.
Moody’s expects Chinese growth to ease to 6.0 per cent from 6.5 per cent over the coming year. This was echoed by Mathur in his outlook for 2019: “Much of Asia is vulnerable to an intensification and broadening of tensions between the US and China.”
Analysts said Singapore, which has experienced a sharper than expected fall in growth, and Malaysia, where consumer spending is up after its value added tax was abolished, were being hurt by their exposure to Chinese supply chains.