The Organization for Economic Cooperation & Development (OECD) has just released its 2016 study on the economic outlook for South-East Asia, China and India. Using data culled from 2014-2015 performance indicators, this comprehensive study examines several areas of interest to foreign investors throughout the Asian region.
The study is divided up into three main sections, the first dealing with specific regional economic monitors and depicting the medium-term economic outlook and macroeconomic challenges in the region. The second section consists of three chapters on “enhancing regional ties”, which is the special thematic focus of this report. The third section includes structural policy country notes and a summary.
While some of the data is patchy and reliant upon Government statistics – which can be problematic in the case of China and some of the ASEAN nations, who have a tendency to exaggerate – the report does make an overall good case study for where we are today in Asia, as well as provides predictions for the next five years to 2020. It is interesting to note that the focus of the report is definitely on Asia’s primary emerging markets – the ASEAN nations of Indonesia, Malaysia, the Philippines, Thailand and Vietnam are featured, as are China and India. That is a crucial distinction to make: both Singapore and Hong Kong are mature, wealthy markets, and including them in merging, mass market data creates distortions. This is likewise the case for Brunei, which is a small, very wealthy nation, yet essentially a localized oil play; and the markets of Cambodia, Laos, & Myanmar, which are so far behind in overall development at this stage that including them depresses the overall regional potential and distorts the overall development picture downwards. The combined GDP of the latter three is still less than 50 percent of China’s Yunnan Province, as I mentioned in my article “Getting Growth Into Asia”.
Such distinctions are particularly useful in terms of assessing consumer data and purchasing trends, especially in a somewhat depressed global economy where the majority of manufacturers are looking for new markets and new trends. This is what the report has to say about the growth of private consumption in the region:
Such data is far from being the ten percent plus we are used to in Asia, but it does suggest that a reasonable, consistent return is achievable throughout the region, and within India in particular. The China hawks will pounce on a retraction of consumption in China from 7.5 percent to 6.6 percent within the current five year period to 2020 as bad news, yet the reality there is that the market is huge and cannot absorb huge consumer demand while the Chinese economy is still rebalancing. India, however, looks promising, and the ASEAN 5 look consistently good without being spectacular.
However, what isn’t mentioned in the OECD report is the potential impact that the TPP agreement could have, especially upon Malaysia and Vietnam, both of which are signatories. Both these ASEAN 5 members will benefit from an upturn in their processing trade as a result of the TPP deal, and that includes foreign investment into these countries. This means that the ASEAN forecast for the period from now to 2020 could be better than the report suggests.
In summary, the OECD report suggests “Emerging Asia’s growth prospects over the medium term remain resilient”, yet points out that reforms are still required to keep it on track – presumably a comment aimed at China especially, and to some extent continued liberalization of India’s markets. India has just announced a budget that contains provisions for increasing foreign investment in several industries, yet these reforms don’t really go far enough at this stage.
The OECD report paints a picture of steady growth throughout ASEAN, China and India of about 5-6 percent for the next four years. This may be influenced to a certain extent by the TPP, yet otherwise, it’s a case of consolidation, developing new trade patterns, and getting deeper into the region. And let us not forget, a growth rate of five percent across Emerging Asia, including China, still produces a compound annual growth rate of just less than 22 percent for the current four year period. I suspect that most investors looking at the region will happily take that – yet this figure still represents an element of need for professional assurance. When investing in these markets, look for professional, pan-Asian advice.
The OECD “Economic Outlook for South-East Asia, China & India 2016” full report can be downloaded free in PDF version, or purchased in book format, from the OCED website, here.
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