Indonesia

INDONESIA’S economic growth moderated slightly in the first quarter of 2012, as the lingering Eurozone debt crisis and the slowdown in Asian economies weighed on the demand for the country’s exports. Gross domestic product expanded 6.3 per cent year-on-year, slower than the 6.5 per cent growth in the fourth quarter of 2011. On a quarterly basis, the GDP rose 1.4 per cent following a 1.3 per cent contraction in the preceding three-month period. Expectations were for 1.47 per cent growth. The government is optimistic that economic growth of 6.5 per cent can be achieved this year, though it moved slowly to 6.3 per cent in the first quarter of 2012. The highest increase in business condition occurred in the sectors of agriculture, livestock, forestry, fisheries. As a result, the GDP at current prices in the first quarter of 2012, reached IDR1,972.4 trillion.

The central bank aims to bring inflation towards its range of 3.5-5.5 per cent in 2013. Inflation rose to 3.97 per cent in March after unexpectedly easing to 3.56 per cent in February. Inflation in Indonesia could rise to 5.5 per cent in 2012 if the government hikes fuel prices in the third quarter. The survey also revealed that input price inflation reached the highest level in 12 months in April. Indonesia’s annual inflation increased to 4.5 per cent in April from 3.97 per cent in March.

Economists had expected an annual rate of 4.46 per cent. Month-on-month, consumer prices advanced 0.21 per cent in April compared to 0.07 per cent in the previous month. At the same time, core inflation came in at 4.24 per cent annually.

The exports were relatively lower, but the investment growth was better. Exports grew 7.8 per cent from a year earlier, while imports rose 8.2 per cent. On a quarterly basis, exports fell 7.2 per cent and imports dropped 6.2 per cent. Though the exports experience slight slowdown due to global economic crisis, Foreign Direct Investment is still positive. In December, the country regained its ‘investment grade’ rating after 14 years. Fitch Ratings upgraded its long-term foreign and local-currency issuer default ratings to BBB- from BB+, with a ‘stable’ outlook. Investment grew 9.9% from a year earlier in the first quarter. The government is looking to boost consumption further this year and raise infrastructure spending to aid economic growth. Meanwhile, the rating upgrade is expected to contribute to the investment boom.

The continuing debt crisis in Europe and the tentative US recovery have hurt demand for exports, an important driver of Indonesia’s economy. Exports, which account for nearly 26 per cent of the GDP, rose 7.8 per cent in the first quarter from a year, down from 7.9 per cent in the fourth quarter last year. The central bank forecasts the economy to grow 6.3-6.7 per cent this year and 6.4-6.8 per cent in 2013. In a report published last month, the World Bank projects 6.1 per cent growth for the economy this year, which is then expected to pick up to 6.4 per cent in 2013. Indonesia’s budget deficit would possibly reach 3.1% of GDP this year without a fuel price adjustment and assuming oil prices of $120 per barrel, according to the World Bank’s latest monthly report. The lender projects a deficit of 2.5 per cent of GDP provided oil prices remain high and fuel prices are adjusted in the third quarter. These projections compare with a revised Budget deficit level of 2.2 per cent.

Thailand

THAILAND is the second largest economy in the 10-nation ASEAN, second only to Indonesia, and 4th richest nation, according to per capita GDP, after Singapore, Brunei and Malaysia. Due to its openness to foreign trade, the country was hit hard by the international financial crisis and entered into a recession in 2009 (-2.2 per cent) for the first time since the Asian crisis of 1997-98. Estimated at 7.5 per cent, there was a quick and dynamic growth in 2010, driven by the resumption of international trade, household incentives and investment projects (infrastructure). Significant progress has been made in terms of development: poverty has decreased sharply during the last decades. In spite of the crisis’ impact on the country, unemployment rate has remained low (1.4 per cent). In 2011, the economic growth slowed just 0.1 per cent after a 7.8 per cent surge in output in 2010, resulting from the severe flooding which began to hit the country in late July of 2011 and lasted for about six months.

Real GDP contracted nine per cent year-on-year in the fourth quarter of 2011, slashing the annual growth by 3.7 percentage points in 2011. Gross domestic product contracted a seasonally adjusted 10.7 per cent compared to the previous quarter, in contrast to a revised 0.8 per cent growth in the previous three months. Private investment declined 1.3 per cent from last year, following 9.1 per cent expansion in the previous quarter. On the back of post-flood reconstruction, the economy is expected to bounce up in 2012. Thailand’s Ministry of Finance has revised up its 2012 economic growth forecast to 5.5 per cent from 5.0 per cent previously, due mainly to recovering domestic demand and the government’s fiscal stimulus measures. The government expects a faster-than-estimated economic recovery this year due to a revival in domestic demand and production.

Headline inflation stood at 3.8 per cent in 2011, up from 3.3 per cent in the previous year. Higher global commodity prices contributed to an acceleration of inflation rate. The core consumer price index, which excludes raw food and energy items, posted an annual growth rate of 2.4 per cent. In March 2012, headline inflation rate moderated to 3.5 per cent. The Bank of Thailand, the central bank, is expected to keep monetary policy loose in the first half of 2012, with the current policy interest rates standing at three per cent. The National Economic and Social Development Board (NESDB) forecast headline inflation to remain in a range of 3.5-4 per cent in 2012, while private consumption is expected to expand 4.4 per cent.

Owing to the disruption in supply chains after Japan’s disasters and Thailand’s flooding, the growth rate of Thai exports slowed to 16 per cent in 2011, down from 29 per cent in 2010. Thai imports also grew at the slower pace of 25 per cent in 2011, down from 37 per cent in 2010. The US, Japan and China are Thailand’s main trading partners. Nevertheless, the earthquake and tsunami that struck Japan in March 2011 caused disruption to Thailand’s external sector, especially in relation to automotives and electronics. Exports are seen growing by 17.2 per cent this year. Exports contracted 5.2 per cent compared to 27.3 per cent growth in the previous quarter due to floods and economic slowdown of major trading partners, especially the US and EU.

Thailand’s FDI totalled US$9.5 billion in 2011, falling two per cent from US$9.7 billion in 2010. Japan was the largest FDI investor in that year, followed by Singapore, South Korea, the US, Bermuda, Cayman Island, Switzerland and Hong Kong.

Despite the severe floods in the final quarter, FDI flows into Thailand in that quarter recorded nine per cent growth.

Production sector is expected to recover at a faster pace than previously expected, resulting in a continuous increase in private investment. The expansion of external demand is expected to be sound following the strong expansion of the Asian economy.

Despite uncertain near-term prospects, volatile and fragile global economic recovery, especially in the euro zone and the United States, the IMF expects real output to grow by 5.5 per cent in 2012 and rise to 7.5 per cent in 2013. The BOT’s own forecast, however, is less rosy than the IMF’s. It projected a growth rate of 4.9 per cent in 2012 and 5.6 per cent in 2013.

The lower growth forecast in part reflects concerns about the uncertain external economic environment - the global economy. The prospect for a strong economic rebound depends, to a large extent, on export performance. The US and the euro zone are main export destinations, accounting for one-fourth of Thailand’s exports. Both the US and euro zone are also the largest sources of portfolio investment respectively 5.4 per cent and 1.9 per cent of Thailand’s GDP.

Philippines

The Philippines’ economy has strengthened in the recent years, a fact that protected it from the direct impacts of the global financial crisis and the recession in 2009, but without sparing it totally. After recovering in 2010, growth slowed down in 2011, due to the downturn in exports which followed the economic slowdown of the country’s trading partners, the decrease in public investments and the typhoons which affected the agricultural and fishing sectors. In spite of unfavorable international context, growth should remain steady at around five per cent in 2012, thanks to domestic consumption, employment and vigorous FDI flows.

The Asian Development Bank expects the Philippine economy to perform better this year and the next, mainly on increased government spending and infrastructure investments. It will grow 4.8 per cent this year and five per cent in 2013, faster than the 3.7 per cent growth recorded in 2011. While the immediate picture looks rosier, slow progress on key millennium development goals, rising income inequality, an over-reliance on electronics exports and remittances, and industrial stagnation remain as drags on the economy. After slowing to 3.8 per cent growth during 2008, and sputtering to 1.1 per cent during 2009, real year-on-year GDP growth rebounded to 7.3 per cent during 2010. Overseas workers’ remittances remained resilient during the global financial crisis before expanding by 8.2 per cent in 2010 to $18.7 billion (nearly 10 per cent of GDP).

More favourable global economic conditions and headway on infrastructure will underpin a further uptick in growth in 2013, but the government will need a sizable increase in new revenue if it is to meet its goal of trimming the budget deficit to two per cent of GDP next year. The Philippine economy in 2012 and 2013 will likely grow at a faster pace than the previous year on the back of strong domestic consumption and remittances, according the International Monetary Fund. GDP for the Philippines is forecast at 4.2 per cent this year and 4.7 per cent next year. Growth in 2011 was short of the government’s 5-6 per cent target and 4.5-5.5 per cent forecast. The country’s economic condition will remain sound—able to withstand the effects of the lingering debt crisis in Europe and uncertainties in the United States.

The annual GDP growth averaged 4.6 per cent over the past decade, but it will take a higher, sustained economic growth path—at least 7-8 per cent per year by most estimates—to make progress in poverty alleviation given the Philippines’ annual population growth rate of 2.04 per cent, one of the highest in Asia. The portion of the population living below the national poverty line increased from 24.9 per cent to 26.5 per cent between 2003 and 2009, equivalent to an additional 3.3 million poor Filipinos. The balance of payments surplus widened from $6.4 billion in 2009 to a record $14.4 billion in 2010.

Although still relatively high, the debt of the national government has declined to under 56 per cent of GDP from a 2004 peak of 78 per cent of GDP and the consolidated public sector debt has declined to about 75 per cent of GDP from a 2003 peak of 118 per cent of GDP.

Inflation might average 3.1 per cent this year and 4.1 per cent in the next. The BSP’s average inflation forecast is 3.1 per cent this year, within its 3-5 per cent target range. According to the ADB, inflation in 2012 is set to dip slightly to an estimated 3.7 per cent on the assumption of broadly stable global commodity prices, while the peso is seen little changed against the US dollar. But the central bank is of the view that inflation is likely to remain within the lower half of the 3-5 per cent target range this year and 2013, the bank said. Moreover, the risks to the inflation outlook is seen to be broadly balanced, with the subdued pace of global economic activity expected to temper the rise in commodity prices. The central bank will continue to monitor emerging demand and price developments to ensure that monetary policy settings remain consistent with price stability while being supportive of non-inflationary economic growth.