South-east Asia’s Regional Strategic Forecast

Economist Intelligence Corporate Network recently concluded the first session of our bi-annual Regional Strategic forecast, delivered by EIU’s Chief Economist, Simon Baptist in both Singapore and Kuala Lumpur. We were joined by an excellent panel in Singapore:

  • Angie Stephen, Vice President and Managing Director, Asia Pacific, Royal Caribbean Group
  • Polka Mishra, Partner and Managing Director, Javelin Wealth Management
  • Suhaimi Zainul-Abidin, Director, Quantedge Capital

For those who missed it, here is our Regional Strategic Forecast:

  • Asia should post GDP growth of 3.9% this year, ahead of global growth of 1.9%, with pockets of opportunities concentrated in the tourism and service sectors. US and Chinese consumer activity has been stronger than anticipated, especially with China’s rapid pivot from zero-covid shoring up consumption from H2 2023. 
  • China’s consumption-driven rebound will mainly benefit Asian exporters of consumer goods and tourism services, with more limited implications for commodity producers. Commodity prices are well off their highs this year, but will gain some ground – this applies to energy prices as well.
  • High interest rates, high inflation will persist this year, stumping import reliant economies and countries with higher levels of household debt. Lack of fiscal stimulus in China will moderate consumption somewhat, despite the rapid re-opening.
  • Geopolitics will remain a major source of business risk. Tensions are rising, along with defense budgets as countries posture around “strategic protectionism” – expect export bans and higher regulatory costs as widening political and economic divergence exacerbates.

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We also discussed some regional themes

  • China – observations that the bounce back from zero-covid is faster than expected, with cases peaking earlier than expected. However, the impact of China’s impending growth rebound will be felt unevenly across the region. Domestic services and entertainment industries will certainly benefit, but at the same time this will cut back on spending for goods that were in demand during the pandemic, like electronics and household furniture. 
  • India – Quickly summarised as a country with mouth-watering opportunities, accompanied by eye-watering challenges. A youthful population, rising urbanisation and consumption carries economic heft, but the business environment has not kept up. Weakness in the finance sector, requiring more “innovative” capital as well as platforming, will gear the country towards greater growth. As a supply hub alternative, India’s production capabilities remain 10-15 years behind China, with problems in quality control. 
  • Emerging Asia – Strong job recovery has spurred consumption, but wages remained stagnant. A firm recovery in retail sales has been generally shared across the region, with consumption preferences shifting from discretionary goods to experiential spending suggesting some frontier economies like Vietnam are well underway on their transition towards a developing economy. 

On to the panel discussion, where we discussed some individual economies

  • Terminal interest rates are coming up higher than expected, and the duration between peaks and throughs is longer now. Expect inflation to last a bit longer, and watch out for countries whose central banks have hiked slowly – they would be slow to unwind and lower rates as well.
  • Supply chains are getting shorter, with more companies going local, and at a higher cost. “Hyper-localisation” allows companies to develop more in-depth knowledge of their markets and react faster to their business environments, whilst also more accurately identifying market gaps and opportunities.
  • Competition for top talent will ramp up. Working location is becoming less relevant – advances in communication technology and remote working also mean top talents have more options. Productivity gains from technology cannot be unlocked without people holding the required skill set, and companies should strategise for better staff retention, HR processes and managing a globally distributed workforce.