Asean to lead growth

The global research department of banking giant Standard Chartered on Monday said that the ASEAN region, which includes the Philippines, will likely grow anew this year, possibly outpacing global growth.

Edward Lee of StanChart said that the growth will be supported by strong domestic economic activity and support from intra-regional trade.

“ASEAN is set to be the region to be situated in again in 2013. After an estimated growth of 5.2 percent, we project the region to grow by 5.3 percent in 2013, outpacing IMF’s global growth estimate of 3.6 percent,” Lee said.

He stressed that the region is expected to see economies such as Indonesia, the Philippines, and Malaysia matching or exceeding their 10-year average rates.

The Philippines has been one of the better-performing economies in the region last year. It beat expectations in the third quarter with 7.1 percent GDP growth, ahead of other economies within the ASEAN.  Indonesia was the second-best performer in the ASEAN with 6.2 percent growth, followed by Malaysia (5.2 percent), Vietnam (4.7 percent), Thailand (3 percent), and Singapore (0.3 percent).

Year-to-date growth is already at 6.5 percent with services and industry still driving growth.

The International Monetary Fund (IMF) last week revised upward it’s 2012 and 2013 economic growth forecasts for the country, as it expects private and public consumption to remain strong.

IMF said that it now sees the country growing 6.5 percent in 2012, higher than its forecast last year of 4.8 percent.  For 2013, the IMF sees growth “slowing down” to 6 percent.  But this is also higher than the lending institution’s earlier forecast of 4.8 percent.

Lee said that confidence in the ASEAN region is high, not just domestically but also among foreign investors, from whom the region attracted 7.6 percent of global foreign direct investment in 2011 versus 4.3 percent in 2006.

“Indeed, since 2000, following the crippling financial crisis, the ASEAN region has outgrown the world by an average of 1.5 percent,” Lee said.

Lee also stressed that despite beating global growth since the Asian financial crisis, the region still has plenty of room to expand as it catches up with the rest of the world.

“Despite the world-beating growth rates registered over the last decade or so, the region can still achieve more. The region is hardly at the stage where the factors for growth have become complicated,” Lee said.

StanChart said that at the most basic level, the continued process of urbanization will help to drive ‘easy’ growth.

“This is the economics of agglomeration. Urbanization helps to improve the overall well-being of an individual by improving access to services and housing. This can boost productivity and consumption,” Lee said.

Lee explained that the bank conducted a simple study on the positive impact of urbanization on economic growth.

“Urbanization and economic growth tend to go hand-in-hand, although there have been cases where urbanization is not accompanied by economic growth. Here, we assume that urbanization efforts are successful in raising economic well-being,” Lee said.

They categorized the 10 economies within the ASEAN bloc into three tiers of urbanization. Tier 3 (20-25 percent urbanized) includes Cambodia, Vietnam, Myanmar, Thailand and Laos; Tier 2 (50 percent) includes the Philippines and Indonesia; and Tier 1 (75 percent) includes Malaysia, Brunei and Singapore.

“Our study yielded two main results. First, Asean’s GDP per capita could almost triple to $10,290 from $3,509 in 2011, assuming successful urbanization.  Second, assuming no GDP growth in the Tier 1 countries, the region’s GDP growth could average 6 percent for the eight years from 2012-19, higher than the 5.3 percent average from 2000-11,” Lee said.

StanChart stressed that urbanization is likely to grow at a slower pace than the overall economy, but per-capita GDP typically rises at an exponential rate as urbanization increases.

He added that urbanization helps to increase efficiency as distances are shortened.  This lowers the costs of businesses, or the government’s costs to provide infrastructure and necessities. Jobs and supply of labor are concentrated rather than dispersed.

According to the World Bank, the world passed the 50 percent mark for urbanization in 2007. As of 2012, there are still 6 countries in ASEAN that have not passed the 50 percent point – Cambodia, Laos, Myanmar, Philippines, Thailand and Vietnam.

“Indonesia just crossed the midpoint at 51.4 percent. Singapore, Malaysia and Brunei are largely urbanized. As a region on the whole, we still have some low hurdles that we can cross to keep growth sustained,” Lee said adding that urbanization is typically associated with growing wealth.

Measuring this by GDP per capita and using the World’s experience with urbanization as an example, every percentage point increase in urbanization raises GDP per capita by about $500. The low hurdles to growth can also be seen in the GDP per capita of countries in ASEAN, Lee said.

Compared with the World’s GDP per capita of $10,000 in 2011, only 2 countries (Singapore and Brunei) exceed this level.

Malaysia is nearly on par but the next nearest country, Thailand, is only about half of the World’s GDP per capita.

Lee said Brunei and the Philippines are in the transition stage to efficiency-driven and Thailand and Indonesia are at the efficiency-driven stage.

The country’s per capita GDP is estimated at $2,500.-Malaya (January 29, 2013)