Observations of the ASEAN Economy 2023

ASEAN has been resilient in 2022.  The majority of the countries in the region have enjoyed notable rebound in economic activity after reopening since Covid-19 pandemic.  Higher commodity prices increased export revenue in the first half of 2022 for commodities exporters such as Thailand, Malaysia and Indonesia. 

Inflation has risen during 2022, but local central banks reacted in a timely fashion to rein it in through multiple rate hikes.  Furthermore, subsidies have mitigated the impact of higher inflation on domestic consumption.  Local equities in the ASEAN region have been resilient compared to the global market, even though performance has been eroded by a stronger US dollar.  The strengthening of the US dollar against local currencies is expected to continue well into 2023. 

The 2023 outlook for the region is neutral for the region as whole.  However, China’s reopening will help with risk sentiment.  Thailand and Singapore  will benefit the most from the expected rebound of Chinese outbound tourism.  While we do expect China’s economy to rebound close to pre-Covid-19 levels, this will probably be delayed to the 2^nd half 2023 because of China’s slow opening. 

If, as expected, the US economy goes into recession, the slowdown in domestic demand and global trade will outweigh the rebound in China’s import demand.  This will negatively impact ASEAN economies.  The reopening momentum will slow in 2023.  A few local central banks are still on hiking cycles.  The consensus’ expectation for a pause only in 2^nd and 3^rd quarters.  The impact of higher cost of funding will be seen in the 2^nd half of 2023.  This will damp investment and consumption.