Economic Outlook for Southeast Asia, China and India 2019

OVERVIEW

Economic Outlook for
Southeast Asia, China and India 2019
TOWARDS SMART URBAN TRANSPORTATION

2019

Overview

Chapter 1: Macroeconomic assessment and economic outlook

Gross domestic product (GDP) growth in Emerging Asia – Southeast Asia, China and
India – has held up in 2018 despite external and domestic headwinds. In Southeast Asia,
economic expansion rates have remained robust although the trends by country have
somewhat diverged. While China’s economic growth is gradually slowing, GDP growth
in India is expected to remain robust. Overall, the resilient private consumption story in
the region continues, underpinned by stability in labour market and overseas transfers
in some cases. Growth in gross exports has also withstood trade policy uncertainties
rather well. Several monetary authorities in the region have raised interest rates to
address monetary normalisation in advanced economies as well as price and exchange
rate pressures. These moves have been accompanied by policies to provide liquidity to
support growth. Fiscal positions in the region are generally stable.

Overview and main findings

GDP in Emerging Asia is estimated to grow by an annual average of 6.1% in 2019-23,
based on the OECD Development Centre’s Medium Term Projection Framework (MPF-2019)
(Table 1). Domestic demand is expected to sustain its momentum, particularly household
spending, as job markets are expected to remain vibrant. However, trade is facing more
uncertain prospects as tariff measures broaden. Southeast Asia is forecast to continue to
grow by 5.2% in 2019-23, faster than the rate posted in 2012-16. China is forecast to have
an average growth of 5.9% in 2019-23, slower than its 2012-16 average of 7.3%. Investment
and government spending are likely to offset substantial weakness in trade. India’s
medium-term growth is projected to be 7.3%, surpassing the average of 6.9% in 2012-16.

Table 1. Real GDP Growth in Southeast Asia, China and India
Annual percentage change

2017

2018

2019

2019-23 (average) 2012-16 (average)

Brunei Darussalam and Singapore

ASEAN-5 countries

Indonesia
Malaysia
Philippines
Thailand
Viet Nam

Brunei Darussalam
Singapore

CLM countries

Cambodia
Lao PDR
Myanmar

China
India

China and India

Average of ASEAN-10

Average of Emerging Asia

5.1
5.9
6.7
3.9
6.8

1.3
3.6

7.0
6.9
6.8

6.9
6.7

5.3

6.5

5.2
4.9
6.4
4.5
6.9

2.0
3.5

7.0
6.6
6.6

6.6
7.5

5.3

6.6

5.2
4.8
6.5
4.1
6.7

2.3
2.9

6.9
6.8
6.9

6.3
7.3

5.2

6.3

5.3
4.6
6.6
3.7
6.5

2.0
2.7

6.9
7.0
7.0

5.9
7.3

5.2

6.1

5.3
5.1
6.6
3.4
5.9

-1.3
3.5

7.1
7.6
7.3

7.3
6.9

5.1

6.8

Note: The cut-off date for data used is 21 November 2018. ASEAN and Emerging Asia growth rates are the weighted
averages of the individual economies in these groupings. Data for India and Myanmar relate to fiscal years.
Myanmar’s 2018 data refers to the interim 6-month period, from April 2018 to September 2018 while the 2019
data refers to the period from October 2018 to September 2019. The 2018 and 2019 projections for China, India and
Indonesia are based on the OECD Economic Outlook 104 database.
Source: OECD Development Centre, Medium-term Projection Framework (MPF-2019).

ECONOMIC OUTLOOK FOR SOUTHEAST ASIA, CHINA AND INDIA 2019: TOWARDS SMART URBAN TRANSPORTATION © OECD 2018

1

OVERVIEW

ASEAN-5

• In the medium term, Indonesia’s GDP growth is projected to average 5.3%, the
same rate as in 2012-16. Considering the vibrant health of the labour market,
private consumption should expand robustly, consistent with the trend since 2007.
Continuous improvement in the investment climate bodes well for expanding
the production base and job opportunities. Public debt-to-GDP ratio is arguably
manageable.

• Malaysia is estimated to grow by 4.6% in 2019-23, 50 basis points slower than
growth in 2012-16. Private consumption will likely remain strong, supported by an
absorptive labour market that maintains a low unemployment rate as the labour
participation rate and real wages rise.

• In the next five years through 2023, the Philippines is estimated to grow annually by
6.6%, equalling the rate in 2012-16. Overseas remittances will still be an important
component of private consumption. The underemployment rate, which has recently
risen again despite the decline in the labour participation rate, requires attention.
Robust public budgetary spending should help buoy the economy, albeit the quality
of spending can still be improved.

• Between 2019 and 2023, Thailand’s economy is projected to grow 3.7% a year,
up from 3.4% in 2012-16. Fixed investment should benefit from changes in key
legislations in the last two years. It helps that investment climate indicators
have also generally improved recently. The effective implementation of an East
Economic Corridor (EEC) infrastructure will be crucial to continuing the growth
momentum.

• Viet Nam’s medium-term growth is projected to grow to 6.5% on average in 2019-23
from 5.9% in 2012-16. Exports are expected to continue to anchor economic activity,
supported by the influx of foreign direct investment (FDI). Keeping the momentum
going necessitates continued efforts to improve the quality of labour. The resolution
of non performing loans (NPL) is also crucial.

Brunei Darussalam and Singapore

• Brunei Darussalam’s economy is projected to rise annually by 2.0% from 2019-23,
reversing the average of -1.3% in 2012-16. The current oil price level augurs well for
the country’s export earnings and domestic demand. Improvements in FDI inflows
and private sector development will be critical.

• Singapore is forecast to post 2.7% GDP annual growth in the medium term, almost
a percentage point slower than its average of 3.5% in 2012-16. Fixed investment is
expected to pick up in line with various infrastructure plans. The steady investment
inflow into information and communication technology ventures will also help.
Various initiatives to retool labour force skills are critical.

CLM countries

• Cambodia’s economy is projected to expand by 6.9% in the next five years until
2023, more moderate than the 7.1% growth in 2012-16. The steady influx of foreign
capital and the country’s involvement in multilateral infrastructure projects bode
well for infrastructure, exports and the job market. Capital market development
ought to be pursued.

• Lao PDR’s expected economic growth rate of 7.0% annually in 2019-23 will be down
from 7.6% in 2012-16. The large energy-related deals, special economic zones and

2

ECONOMIC OUTLOOK FOR SOUTHEAST ASIA, CHINA AND INDIA 2019: TOWARDS SMART URBAN TRANSPORTATION © OECD 2018

3

OVERVIEW

broader fiscal incentives are engines for growth. Policies and management related
to hydroelectoricity would be key for sustainable growth.

• Myanmar’s GDP growth is estimated to average 7.0% annually in 2019-23, marginally
slower than the 7.3% growth in 2012-16. Planned transportation investment,
the gradual improvement in investment climate indices and recent investment
liberalisation measures should strengthen the economy in the coming years.
Managing inflation and resolving banking sector fragilities are challenges.

China and India

• China is projected to register 5.9% average annual GDP growth in 2019-23, down
from 7.3% in 2012-16. The willingness of the national government to stimulate
domestic activity amid trade tensions and the resurgence of investment are
reassuring signals for domestic demand. Improving the relatively high level of
corporate debt-to-GDP ratio and wealth inequality are challenges.

• The economy of India is forecast to grow by 7.3% in the medium term, up from
6.9% in 2012-16. Labour market conditions point to solid growth in private
consumption, although rising inflation and interest rates can be drags. The push
for consolidation will most likely limit the government’s spending flexibility as
well. How infrastructure projects are carried out will be key. Maintaining banking
sector health is another challenge.

Other key points of the economic outlook and assessment

• Inflation trends remain divergent. Inflation is on an uptrend in China, the
Philippines, Thailand and CLM countries while it is relatively stable or even
declining in other Emerging Asian countries. The increase in global oil prices and
domestic factors affect these trends, although the moderation of global food prices
provides some respite.

• Several monetary authorities in the region have raised interest rates to address
monetary normalisation in advanced economies as well as price and exchange
rate pressures. Some of them have introduced other liquidity measures to support
growth. Meanwhile, the banking systems are generally stable, albeit asset quality
issues persist.

• Overall, the external positions of Emerging Asia are sound. Trade performance is
relatively stable in Emerging Asia amid rising protectionism while regional trade
agreements are progressing. FDI inflows into Emerging Asia remain positive.

• A number of economies in the region look to rein in their respective fiscal deficit
ratios in the near term, though fiscal positions in the region are generally stable.
The persistence of deficits in current account and fiscal positions in some countries
could raise a concern to growth momentum.

Risks and challenges to the outlook

Growth projections in the near and medium term are favourable for Emerging Asia. If
countries are to maintain their robust growth momentum, however, appropriate policies
are needed to:

• maximise the opportunities and mitigate the risks of financial technology;

• strengthen export performance amidst rising protectionism;

• mitigate the risks of natural disasters.

In addition, the pace of monetary policy in advanced economies, along with geopolitical

tensions and the trends in global oil prices, need to be carefully monitored.

ECONOMIC OUTLOOK FOR SOUTHEAST ASIA, CHINA AND INDIA 2019: TOWARDS SMART URBAN TRANSPORTATION © OECD 2018

3

OVERVIEW

Maximising opportunities and mitigating the risks of financial technology

The growing influence of technology in financial services (Fintech) in Emerging Asia
carries with it economic opportunities through deeper financial inclusion. But it can also
be an economic pitfall if the regulatory environment fails to appropriately guide future
developments in the sector. National authorities in Emerging Asia are aware of this trade-
off. Several national and cross-border initiatives have been launched, both by public and
private institutions. However, regulatory progress has been uneven, and policy gaps
related to potential risks remain.

In Southeast Asia, Singapore is leading the way in raising capital, market penetration
and degree of sophistication. Other ASEAN-5 economies are slowly catching up. Target
market coverage has gradually expanded from enterprises involved in e-commerce to
farmers, social housing groups, students and even bank clients seeking to restructure
debt. Fintech subindustries have also widened in the region (Table 2). In Indonesia,
Malaysia, Singapore and Brunei Darussalam, sharia-compliant or Islamic Fintech services
have gained investors’ attention.

Service

Remittance, money transfer
and mobile payments

Table 2. Examples of Fintech services in Emerging Asia

Description

• Web-based or application-based electronic platforms for local or overseas monetary

transfers or payments for goods and services acquired

• Remittance fees, if any, are generally more competitive than those offered by traditional

financial institutions

• Widespread in Emerging Asia

Alternative risk assessment for
insurance and lending

data to assess the risks involved

• Alternative insurance and credit scoring services using machine learning tools and big

• Used to obtain tailored insurance policies or loan packages even in the absence of

traditional documentary requirements

• Relatively at its nascent stage in Emerging Asia

Lending and capital raising
platforms

• Platforms that support peer-to-peer lending services as well as donation, debt and equity

crowdfunding, which link investors and capital recipients directly

• Gaining ground in many Emerging Asian countries

Wealth management

• Utilises machine learning tools for managing various types of financial assets, which

include but are not limited to robo advisors and algorithmic trading

• Relatively at its nascent stage in Emerging Asia

Platforms comparing features
of financial products

• Data aggregators focusing on the characteristics of financial products that are available

in the market such as loan packages and insurance policies

• Compare interest rates, premiums and charges, among other features, that potential

clients will likely get from different insurers and lenders based on the data they provide

• Available in many Emerging Asian countries

Note: The table does not aim at providing a comprehensive coverage of Fintech services in Emerging Asia.
Data are as of September 2018.

Source: OECD Development Centre.

Similarly, supervision and regulations have broadened in all Emerging Asian countries
but vary in scope and depth (Table 3). Central banks have mainly opted for an overview
role in Fintech matters. Many of them have set up separate entities under their supervision
to cover issues in this area. In some countries, the ministry of economy, the ministry
of telecommunications, the securities commission and the insurance commission also
support the central bank, essentially forming an inter-agency supervisory body.

Fintech can be a source of financial system vulnerabilities. Fintech firms participating
in lending businesses in the region are arguably not yet systemically important based on
capitalisation. However, the steady inflow of capital and sizeable expansion of operations

4

ECONOMIC OUTLOOK FOR SOUTHEAST ASIA, CHINA AND INDIA 2019: TOWARDS SMART URBAN TRANSPORTATION © OECD 2018

5