Asia: Not all in the same boat

There is growing concern over the current global growth slowdown, described by some as “synchronised”. 

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The International Monetary Fund (IMF) recently downgraded their forecast for global growth to 3.5 per cent for 2019, down from the 3.7 per cent they forecast back in October.

"Economic activity proved to be resilient the last time Asia experienced a trade recession during the 2015-2016 period.”

In Asia, the region’s exports contracted in year-on-year terms in December, the first time since October 2016. South Korea’s exports for January contracted by 5.8 per cent year-on-year and new export orders indicators are pointing to this weakness continuing for the rest of the first quarter.

We are now seeing the payback from earlier frontloading of exports ahead of US tariff implementation, as well as the slowdown in the global tech cycle.

Gloomy then but look closer: although a contraction in exports would suggest slowing gross domestic product growth in the region, ANZ Research notes economic activity proved to be resilient the last time Asia experienced a trade recession during the 2015-2016 period. 

There has been higher reliance on domestic demand and, for some countries like Indonesia and Thailand, increased government spending, especially on infrastructure, has helped support growth.

ANZ Research’s view is still for a moderate slowdown over the first half of 2019 before growth stabilises and starts to improve. Stabilisation in financial markets, especially with the US Federal Reserve now in pause mode, lower global oil prices, and spillover from stimulus measures from China are what is expected to lead the improvement in growth.


What has been notable is the divergence in the manufacturing Purchasing Managers' Index (PMI) readings between Southeast Asia and North Asia.

North Asia’s PMI is not only in contraction territory (ie below 50) but has also weakened compared with September last year. In contrast, Southeast Asia’s PMI is mostly in the expansion zone and has shown improvements from four months ago. (An exception is Malaysia).

India, which recently revised higher their GDP growth estimates for the last two financial years, has seen its manufacturing PMI rising the most over the past four months to record the highest reading in the region. This North-South divergence is consistent with the greater reliance of North Asia on China through their supply chains, compared with the rest of the region.

Another reason to believe Southeast Asian economies could prove to be more resilient is their continued attractiveness as a destination for inward foreign direct investment (FDI).

According to preliminary global FDI flows data for 2018 released by UNCTAD, total FDI inflows fell for the third year in a row to $US1.2 trillion. The decline was mainly due to developed economies. FDI flows into developing economies increased, with ASEAN being the main FDI growth engine where inflows increased by 11 per cent to $US145 billion, a new record high.

FDI flows into ASEAN exceeded that going into China. Singapore accounted for 53 per cent of the overall FDI flows into ASEAN at $US77 billion. FDI into Indonesia stayed robust at USD21bn while Thailand saw a second consecutive year of increase in inflows to USD11bn. Full year estimates for Vietnam are not yet available but should record the third largest FDI flows in ASEAN behind Singapore and Indonesia.

The FDI data show ASEAN remains an attractive destination despite the trade tensions between the US and China. There is the potential for Southeast Asia to benefit from a shift in manufacturing supply chains out of China, even if a trade deal were to be struck. 

The divergence in the PMI and the strong FDI inflows into Southeast Asia points to a need to differentiate the different economies in the region, not just lump them all together on the synchronised slowdown boat.

Khoon Goh is Head of Asia Research at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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