Tourism is an obvious bright spot. Thailand will be the biggest beneficiary, but for countries such as Vietnam, Singapore and Malaysia, tourism receipts are still sizeable, HSBC Says
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Photo Credit: Japan Today
Photo Credit: Japan Today

The year 2022 was a challenging year for the world. However, for Southeast Asia, it was a great year in terms of its recovery. Regional growth was quite impressive, with Malaysia expanding 8.7% and Vietnam recording a 20-year-high of 8%. So what does this mean for 2023? The short answer is that ASEAN’s growth is likely to decelerate in 2023. That said, there are also reasons to stay slightly more optimistic on its growth prospects, particularly with the China re-opening story – which is good news for the global economy, and in particular for Southeast Asia.

Tourism: Tourism is an obvious bright spot. Thailand will be the biggest beneficiary, but for countries such as Vietnam, Singapore and Malaysia, tourism receipts are still sizeable. In Thailand and Vietnam, Chinese tourists accounted for around 30% of visitors in 2019. That said, the volume of Chinese tourists will depend on a number of factors, such as flight capacity and the ease of getting a visa. Reviving tourism also matters for ASEAN’s labor market recovery and its current account, which is related to the currency.

Export growth: For most ASEAN countries, China has become the top export destination, if not the largest one. In 2022, Malaysia and Indonesia, two commodity exporters in ASEAN, benefitted handsomely from high global commodity prices. China’s rebound will likely put a floor under commodity prices, which will continue to benefit the two countries. Others might see some boost in terms of their agriculture exports to China – e.g., Vietnam’s dragon fruits, Philippines’ bananas and Thailand’s durians. That said, ASEAN’s exports are more related to China’s industrial cycle, rather than its consumer cycle. Since 4Q22, there have been intensifying trade headwinds in the global cycle, hitting export-oriented economies hard, like Singapore and Vietnam. China’s rebound will likely put a floor under global industrial production but will unlikely reverse the notable global trade slowdown.

FDI: However, if look at trade from an FDI perspective, ASEAN’s prospects remain bright. In the past 30 years, the region has gained substantial global export market share, thanks to consistent FDI inflows. Looking at high frequency data, two countries stand out. One is Malaysia, which has attracted sizeable investments for semiconductors. The other one is Vietnam, which has attracted more investment from Apple. In addition, China has also been catching up quickly to become a key FDI provider in the region. The picture varies by country and sector – for example, a lot of China’s investment goes into the tech manufacturing sector in Vietnam and into the EV sectors in Thailand and Indonesia.

Inflation: While headline inflation peaked in most ASEAN countries (except the Philippines and Vietnam), the key indicator many policymakers are watching is core inflation, which has been either accelerating or remains elevated. HSBC expects inflation to moderate this year, but the pace will likely be gradual.

HSBC forecasts: After impressive growth in 2022, HSBC expect growth to decelerate in ASEAN except in Thailand. Thailand is the only ASEAN country where we expect an acceleration in growth on the back of a more meaningful return of tourists. That said, this does not mean ASEAN will enter into a recession. The year 2023 will be a year of slower growth. For Vietnam, HSBC expects growth to slow to 5.8%, but likely top the region in terms of growth performance in 2023.

Diep Nguyen