UOB reveals 10 factors supporting ASEAN countries to cope with future market volatility

UOB’s Quarterly Global Outlook for Q1 2023 reveals 10 key factors that will help ASEAN countries cope with future market volatility.

The year 2022 has been beset by the continuing impact of COVID-19. Russian-Ukrainian military conflict US-China tensions Supply disruptions in energy and commodities Inflation is high in decades around the world. Interest rate hikes by the Fed and other central banks and the appreciation of the US dollar But it is gratifying that ASEAN member states have been able to withstand the volatility of financial markets in 2022.

The UOB report summarizes 10 key factors reflecting the resilience of ASEAN member states in coping with market volatility over the past year. This will also be a fundamental factor for dealing with future market volatility.

1. Most ASEAN economies recovered strongly in the 2nd and 3rd quarters of 2022 on the back of rising exports and domestic demand. Malaysia had the fastest growth rate in ASEAN in the third quarter of 2022.
2. productivity of ASEAN countries (Except Thailand) has returned to pre-Covid levels. from export demand and opening up of new economies that stimulate domestic demand
3. Trade in ASEAN remains strong. During the outbreak of COVID-19 Exporters and manufacturing in ASEAN are the main beneficiaries. But in the coming months, global demand is expected to soften as rising global interest rates hurt spending and business activity.
4. tourism recovery Lifting restrictions related to COVID-19 and opening up the economy in different countries in ASEAN once more since mid-2022, allowing ASEAN to recover faster due to increased tourist flows and a rebounding service market. These factors are expected to be pillars for the ASEAN economy in 2023, and when China eases its COVID-19 policy and re-opens its borders, it will be another factor supporting ASEAN tourism recovery.
5. Inflation in ASEAN is generally low. compared to developed markets in 2022, making economic expansion more flexible.
6. Supply Chain Changes US import share from ASEAN, especially Vietnam, increased While the US imports from China decreased following 2016, which overall will benefit ASEAN as a manufacturing and export hub.
7. As a result of changes in the supply chain, Foreign direct investment (FDI) in ASEAN grew by 44% in 2021 to a record $175.3 billion, and ASEAN has the world’s third-largest FDI following the United States and China.
8. Accumulated foreign exchange reserves since the Asian financial crisis Makes it more shielded from the volatility of the financial markets.
9. Ability to pay imports is another factor reflecting its strength. Most ASEAN countries have enough reserves to cover three months of import payments.
10. Most ASEAN countries have relatively small short-term external debt compared to their reserves.

Global economy grows slower in 2023
UOB Singapore economist Enrico Tanuwidhaha said, “While improving fundamentals have helped ASEAN markets withstand the volatility of financial markets in 2022, next year is expected to be challenging. And there are uncertainties from various risk factors such as the economic recession in the United States and Europe. tight financial conditions U.S.-China relations increasingly strained and the Russian-Ukrainian conflict including other additional factors As ASEAN’s economies are primarily export-oriented as well as the world’s third-largest source of foreign investment (FDI), We cannot ignore these risk factors.”

However, these risks may be somewhat mitigated by the continued recovery in domestic activities. Relaxation of COVID-19 epidemic restrictions and the reopening of cross-border mobility. This will benefit the retail sector. Food and beverages, travel, accommodation and more within the country, and when China reopens its borders will help revitalize the tourism sector, especially in Thailand, Malaysia, Singapore and Vietnam.

“Overall, we forecast a slowdown in global GDP growth in 2023, with developed markets such as the US, Europe and the UK showing slower year-over-year growth. Meanwhile, the major economies in ASEAN (Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam) are expected to slow growth to below 5% in 2023 from above 6% in 2022,” Enrico concluded.

Read the full UOB Quarterly Global Outlook Q1 2023 here: https://www.uobgroup.com/web-resources/uobgroup/pdf/research/QGO-1Q2023.pdf

Source: UOB Thailand