After decades of living under the shadow of neighbors in the North, Southeast Asia is taking over as the region’s growth leader.
Expansion in the Asean-5″•Indonesia, Malaysia, the Philippines, Thailand and Vietnam –will exceed 5 percent through 2022, while growth in North Asia will average just 3 percent, according to International Monetary Fund data.
“There’s a confluence of positive tailwinds like favorable demographics” for Southeast Asia which would spur lower labor costs and greater domestic consumption, said Weiwen Ng, an economist at Australia & New Zealand Banking Group Ltd. in Singapore. “North Asia is at a more mature stage of development, so you expect a more modest growth from them.”
While the likes of China, Japan and Hong Kong have all seen a contraction in their workforces since 2015, Southeast Asia will see its working-age population expand through 2020, Nomura Holdings Inc. estimates show. The Philippines, for example, is projected to see a 1.9 percent expansion of its 15-to-65 year-old population this year, with Malaysia’s due to rise 1.6 percent, Nomura economists said in a report.
The region’s strong growth outlook is luring companies such as Coca-Cola Co. which is expanding in Vietnam and in Myanmar. Apple Inc. is building research centers in Indonesia, while Heineken NV is competing with Anheuser-Busch InBev NV, Asahi Group Holdings Ltd. and Kirin Holdings Co. for a stake in Vietnam’s largest brewer.
The differing demographic outlook is a contributor to each of the region’s growth trajectories, according to Nomura. Aging will clip the potential growth rates of all major North Asian economies in coming years, while those of Southeast Asian economies may accelerate, with the exception of Singapore’s, the bank said.
Countries in Southeast Asia are also ramping up on ambitious large-scale infrastructure projects. Infrastructure spending by the 10-member Association of Southeast Asian Nations will average $110 billion a year through 2025, according to Ernst & Young LLP.
These projects will improve the delivery of goods, services and people across Asean. But given their scale, hiccups are bound to occur, said Max Loh, Asean and Singapore Managing Partner at Ernst & Young.
“Unfortunately, there will always be roadblocks as you try to do this,” said Loh. “Some of these infrastructure projects are across countries, so you have to navigate the political and social and economic environment.”
As economies grow rapidly, Southeast Asia needs to stay the course, said Loh.
“With rising nationalism or populism in various countries, that could be an impediment if countries move backward in terms of globalization,” said Loh. “But at the end of the day, if all the countries come together and have one vision, it can be done.”