KUCHING: Domestic demand remains the primary driver of Asia’s growth, despite sharp acceleration in exports growth at the start of the year, according to ICAEW’s latest Economic Insight: South-East Asia report.
Exports continue to be an important factor, as healthy foreign trade underpins domestic consumption and investment, particularly in East Asia.
The region enjoyed robust gross domestic product (GDP) growth for the first half of 2017, driven mainly by domestic demand.
In many countries, the contribution of net external trade to headline GDP growth was negative and was outpaced by import growth.
Asia’s supply chain mechanisms and resilient domestic demand are likely to lead to import growth as exports and overall growth improve.
Domestic demand has been the main driver of Asian growth for the past five years, though exports continue to play a significant role.
In part, the rise in importance of internal factors in supporting the region’s growth is thanks to an extended period of subdued global demand and limited opportunities for improving exports.
Domestic policies have become more expansionary, bolstering consumption and investment.
This strategy has been broadly successful, meaning Asia has continued to outperform other regions despite a sluggish external environment.
“In the foreseeable future, we expect policymakers to remain accommodative, both in terms of fiscal and monetary policy,” said Priyanka Kishore, ICAEW economic advisor and Oxford Economics lead economist.
“Gross exports continue to have crucial spill-over effects on the domestic economy that should not be ignored, especially as the fortunes of Asian economies are not decoupled from the global trade cycle.”
Pick-up in private domestic demand momentum is stronger in economies where export growth has accelerated notably, such as Singapore and Malaysia. This is primarily thanks to the largely export-oriented manufacturing sector in these economies.
Hence, improved external demand facilitates production, leading to higher investment, rising incomes and consumers spending more. These factors can also lead to job creation, improved productivity and overall economic prosperity.
On the other hand, growing domestic economy concerns in some parts of South-East Asia point to a growth slowdown. After King Bhumibol’s death in 2016, the political situation might have become more strained in Thailand and underlying political tensions may resurface at some point, affecting the economy.
“With growing domestic concerns in countries such as Thailand and the anticipated weakness in export growth, we remain relatively cautious in our forecast. Most Asian economies, if not all, will observe a slowdown in growth.
“Overall, while we expect domestic demand to continue playing a vital role in determining Asia’s growth trajectory, we maintain that growth momentum will ease, especially under the influence of cooling Chinese demand weighing on global trade,” ICAEW South-East Asia regional director Mark Billington said.