Asean growth “should improve” in 2020: HSBC

Asean should see further growth in 2020, thanks to a surge in public infrastructure spending and a relatively stable private consumption, though enacting key reforms this year is critical to boosting potential this decade, said HSBC.

“The region is about to embark on a new investment cycle, led by a planned surge in public infrastructure spending,” said HSBC in its report. 

HSBC expects the Philippines, Indonesia, Thailand, and Singapore to expand their fiscal policies to increase public infrastructure spending. 

The Filipino government is set to make up for underspending in 2019 and to get back on track with the Duterte administration’s “Build, Build, Build” programme. 

The start of construction of large-scale projects like the Manila subway in H2 2019 will fuel investment growth through 2020, said HSBC.

Separately, following the election victory of President Jokowi in Indonesia, HSBC noted that more infrastructure projects are starting construction in Indonesia, such as two refineries worth a total investment value of US$25 billion, and a new capital city worth at least US$33 billion in construction contracts. 

Despite the delays in some Eastern Economic Corridor transport projects in Thailand, HSBC expects three projects to start construction in 2020, contributing nearly one percentage point to Thailand’s gross domestic product (GDP) in 2020. 

However, infrastructure development in emerging markets tends to be particularly import-intensive, which may be a concern in Indonesia and the Philippines, as they are running an account deficit. 

HSBC expects the current deficits in Indonesia and the Philippines to grow to 2.4 per cent and 2.8 per cent respectively, from 2.2 per cent and 2.7 per cent. 

That said, increasing foreign direct investment (FDI) into these countries should help to offset the wider account deficits. 

Meanwhile, Malaysia and Vietnam are likely to have slightly contractionary budget stances, said HSBC.

This is because Malaysia will not see an one-off payment of tax refunds to corporations and households worth nearly 2 per cent of GDP in 2019 reoccur in 2020, while Vietnam is concerned about a high public debt burden. 

A traditional driver of economic growth, consumer spending in Asean “looks set to slow marginally from a strong 2019”, said HSBC.

HSBC noted that the absence of an election-related boost means that each country must rely on traditional drivers, like improving labour market, to spur private consumption in 2020. 

Further, with continued weakness in exports given slowing growth in the US, China and Europe, HSBC said wage growth mag stagnate and unemployment rates may rise in the short-term, especially in export-oriented industries, leading to slower private consumption growth.

HSBC expects “a sharp deceleration” in Malaysia’s consumer spending. Private consumption growth is projected to slow to 6.4 per cent in 2020, from 7.4 per cent in 2019, as wage gains have been declining for six consecutive quarters as of Q3 2019. 

Further, Malaysia’s slightly contractionary fiscal policy may dampen higher-end private consumption.

Thailand may also see slowing private consumption growth in 2020, according to HSBC.

HSBC noted that weakness in the external sector has made its way to Thailand’s domestic sector, as the private consumption index posted a largest sequential decline in eight years - a 5.7 per cent quarter-on-quarter decrease as of Q4 2019. 

Consumer confidence and business sentiment have plummeted throughout 2019, with employment across major industries in contraction, added HSBC.

With these headwinds to persist, private consumption growth is likely to decelerate to 4.1 per cent in 2020, from 4.5 per cent in 2019, said HSBC.

HSBC forecasts a “gradual labour market deterioration” in Singapore in 2020, thanks to subdued activity in external-facing sectors. 

Singapore’s private consumption growth will likely slow from 4.1 per cent in 2019 to 3.3 per cent in 2020, said HSBC. 

Elsewhere, HSBC said the outlook for private consumption in Indonesia, the Philippines, and Vietnam is “more benign.”

Social assistance spending in Jan 2020, coupled with rising economic activity and employment thanks to public investment, should hold Indonesia’s private consumption growth steady at 5.0 per cent in 2020, said HSBC.

Similarly, the Philippines should see its private consumption expand 5.8 per cent in 2020 following 5.9 per cent in 2019, thanks to lower interest rates, higher domestic liquidity, a pick-up in consumer confidence, and the government’s infrastructure push. 

HSBC is “bullish” on Vietnam’s private consumption thanks to its rising wages and booming tourism, even as private consumption growth is set to moderate from 6.9 per cent in 2019 to 6.6 per cent in 2020. 

The key to boosting the potential of the Asean region still lies with the passing of critical reforms this year. 

Indonesia is set to pass two omnibus laws - one on job creation and the other on tax reform. Noting their broad and ambitious nature, HSBC cautioned that such bills require “strong political willpower” to push through.

These bills will be “key litmus tests” for the reform momentum, and will decide if Indonesia can sustainably break out of its 5 per cent growth trap, added HSBC.

In the Philippines, structural reforms in 2020 are likely to revolve around the Duterte administration’s long-delayed tax reform agenda. 

HSBC highlighted Package 2 and 4, as the passing of the former would help boost investor confidence and FDI in the coming year, while the passing of the latter would open the door for more foreign participation in the Filipino financial market. 

HSBC said the key reforms for Thailand in 2020 is to speed up investment realisation to boost economic growth, such as the recently announced “Thailand Plus” programme to accelerate FDI approvals and attract more investment in various sectors.

“We believe that Thailand requires more investment in order to exit the current growth malaise,” said HSBC.

HSBC noted that the Malaysian government is on the right track to attract more investment in the manufacturing sector and to complete large-scale infrastructure projects, though improvements in education - such as a proposal to increase English proficiency - would help to boost the low productivity in the services sector. 

In the coming year, Vietnam is set to revise the private-public partnerships law to address investor concerns, to implement the new taxation law to strengthen its tax collection mechanism, and to require all banks in Vietnam to increase their capital to minimise risks. 

The Singapore government will tighten foreign workforce quota in the services sector to reduce reliance on foreign workers and increase productivity of domestic labour, and fund huge infrastructure projects through borrowing, noted HSBC.