Partner Article

Southeast Asia In The World Economy

There came a point in time when investors would not touch Southeast Asia with a ten-foot pole. Seeing the economic progress of the region in 2011, however, proves that that time has long been gone.

Amidst the global descent towards financial abyss, Southeast Asia managed to keep afloat compared to other regions initially deemed by investors as safe economic powerhouses. While investors were busy salvaging what’s left of their investments, Southeast Asian countries quickly rebounded from the crisis, and have shown steady growth since.

Impact on the World Economy

The economic potential of the region is dictated by its ample amount of natural resources and its strategic location. Composed of 10 countries (Indonesia, Malaysia, Thailand, the Philippines, Singapore, Brunei, Cambodia, Vietnam, Myanmar and Laos), the sub-region shows much promise for investors due to each nation’s growth, development and pro-market economic policies.

By simply looking at the numbers provided by the Carnegie Endowment for International Peace, Southeast Asia proves to be of great importance to the world economy:

• An average growth of 5 percent per year for each country over the last decade
• A combined Gross Domestic Product (GDP) of $1.9 trillion, exceeding that of India’s $1.2 trillion
• A trade-to-GDP ratio in excess of 150% due to its abundant resources
• A population of about 600 million people, which doubles that of the US, that gives the region a boost in terms of the workforce
• Over 8 percent of GDP growth for the entire region despite the global financial crisis of 2008-2009

Such is its economic promise that if the region is one country, it would rank as the world’s ninth largest economy. Due to policy adjustments at the height of the financial crisis, it has also effectively outstripped other developing regions like the Sub-Saharan Africa and Latin America.

Real GDP Growth Rates per Country in 2011

Southeast Asia was not spared from the dire effects of the economic downturn, which caused the collapse of the large economies of the world such as the United States and the United Kingdom. In fact, the annual GDP growth of the ASEAN-6 (Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand) dropped to 3.6 percent in 2008 from 5.5 percent in 2007. CLMV (Cambodia, Laos, Myanmar and Vietnam) also experienced slower growth in 2008, as it plummeted to 6.3 percent from 8.8 percent in 2007.

Although the region is geographically isolated from the US and the UK, [the book Regional Outlook: Southeast Asia 2010-2011 enumerated the following reasons as to why the region was also one of the hardest hit by the financial crisis](http://books.google.com.ph/books?id=FsHBHvOM29oC&pg=PA69&lpg=PA69&dq=real+gdp,+southeast+asia+2011&source=bl&ots=b3cRCtWLPL&sig=kHM4FVIgbRUu8lC6p3STgHLBG-s&hl=tl&sa=X&ei=NLW1T8aaK8PQmAXsxPyiCQ&ved=0CF4Q6AEwBDgK#v=onepage&q=real gdp, southeast asia%):

• a global trade collapse, as the recession caused a drop in the commodity trade;
• Foreign Direct Investments (FDI) inflow reversals, as multinational activities also declined; and
• the decline in international remittances, as unemployment rates in other countries soared, which affected the amount of international remittances received by each country.

However, the region received positive economic projections for 2010 and onwards, as analysts believed that Southeast Asia will recover from the recession. In measuring a nation’s total output of goods and services, taking into account the price changes, the Central Intelligence Agency (CIA) provided the following data on the real GDP growth of Southeast Asian countries in 2011:

Country Real GDP 2011 growth (%)

Laos 8.3

Cambodia 6.70

Indonesia 6.40

Vietnam 5.80

Myanmar (Burma) 5.50

Malaysia 5.20

Singapore 3.70

Brunei 2.80

Thailand 0.10

How the Region Achieved Its Dynamic Growth These Past Few Years

Southeast Asia is now considered to be one of the most promising economies in the world. Singapore was not named as the “Asian Tiger,” nor were Indonesia, Malaysia, the Philippines, and Thailand dubbed as “tiger cubs” for nothing. Here are a number of strategies that pushed the region to grow to its current economic standing:

• Trade barriers were lowered through the Association of Southeast Asian Nations (ASEAN), where all 10 countries are members. The ASEAN’s regional frameworks like the ASEAN Free Trade Act continue to encourage more investors.
• Political and economic reforms were enforced, which allowed further market access for both foreign and local investors.
• There have been continuous innovations from entrepreneurs, such as Malaysia’s RHB bank, which created a low-cost way of attracting deposits; and Thailand’s Indorama, which became the top producer of Polyethylene terephthalate.
• It established industrial giants that generate revenues of around $30 billion to $50 billion, including Thailand’s PTT, Malaysia’s Petronas Carigali, and Indonesia’s Astra.
• Human development indicators were improved, especially in directing funding for higher education.

Sink or Swim: Economic Projections of the Region

Although the region proved to be almost resilient to the recent fiscal crisis that still hounds economic powerhouses to this day, Southeast Asia’s growth will slow down to an average of five percent per year in 2012 to 2016. Analysts connect this to tighter macroeconomic policies in order to answer the volatility of commodity prices.

Southeast Asia should also worry about its close ties with China. China’s financial ventures and trading with Europe and the US (both are still in recession) will bring slower growth to the country, and consequently to the rest of Southeast Asian countries. Moreover, the ADB recommends that Asia should not only enforce policies that would cushion a probable escalation of the global crisis, but also create long-term reforms for further economic developments.

The overall projections, however, look good for the region. The ASEAN will continue to be resilient, as there are more prospects to come and investors are seen to stay for good.

About the Author: Johann is a Marketing Consultant for Debtconsolidation.com.au, a debt

consolidation loans and agreement company that provides assistance and advice for bad

credit loans and bankruptcy issues for people and their finances. Follow him at twitter @johannrcarpio.

This was posted in Bdaily's Members' News section by Johann .