QNB said that it expects growth of the economies of the Association of Southeast Asian Nations (ASEAN-6) will remain slower in 2024 than the pace recorded pre-pandemic, due to weak external demand and tightening domestic and international financial conditions.
The bank pointed out in its weekly report that, although growth in ASEAN-6 countries remains strong according to international standards, it is lower than its pre-pandemic historical performance. It noted that Southeast Asia has been the most dynamic region in recent decades, achieving the best economic growth. The six major countries in the Association of Southeast Asian Nations (ASEAN-6), which include Indonesia, Thailand, Singapore, Malaysia, Vietnam, and the Philippines, have been among the fastest-growing economies in recent years.
The report added that with the end of the COVID-19 pandemic, it was expected that these countries would return to the strong growth rates they had achieved in previous years. However, the economic environment in 2023 provided less support, and in 2024, the performance of these economies will remain weaker than the growth rates recorded before the pandemic.
The report attributed this to two key factors. Firstly, external demand is expected to remain weak in 2024, indicating a decline in the support provided for economic growth in the member countries, which are highly globally integrated. International trade is a key factor for their growth, with exports accounting for between 20 and 30 percent of GDP in Indonesia and the Philippines, between 65 and 95 percent in Thailand, Malaysia, and Vietnam, and 180 percent in Singapore.
In 2023, global trade performance was disappointing and contracted slightly. Over the past forty years, a contraction in global trade has only occurred in 2009 due to the global financial crisis and in 2020 due to the pandemic. The report expects a moderate recovery this year, with international trade set to expand by around 2.8 percent due to improved performance in global manufacturing. Although this growth rate represents an improvement compared to last year, it implies a significant decline compared to the long-term average of 4.6 percent recorded during the period 2000-2022. Given the importance of trade for ASEAN-6 economies, this slowdown represents a major obstacle to economic growth, making it more difficult for the region to return to the growth rates that prevailed before the pandemic.
The second factor on which the bank based its forecast is that high interest rates in major advanced economies as well as in ASEAN-6 countries have increased challenges to economic growth.
In advanced economies, interest rates have reached their highest levels in years, with the U.S. Federal Reserve and the European Central Bank raising interest rates by 525 and 400 basis points respectively since mid-2022. Although the two major central banks have reached the end of their tightening cycles and are now discussing the timing of rate cuts, the process will be gradual, and interest rates are expected to stabilize at higher levels than in the previous economic cycle.
Similarly, central banks in ASEAN-6 countries implemented their own monetary tightening cycles to contain rising prices. In these economies, the average increase in benchmark interest rates was 240 basis points, higher than those prevailing at the onset of the pandemic. The report expects central banks in Southeast Asia to reach a turning point in monetary policy by mid-year, given the slowdown in economic growth and continued downward trends in inflation.
It concluded by saying that relatively high interest rates and the lagged effects of monetary policy will continue to weigh on activity in the coming quarters. (QNA)
