Due to a shaky geopolitical climate, experts recently predicted that uncertainty will grip the global economy in 2017, slowing down growth. Yet they argued that the Association of South-East Asian Nations (ASEAN), may defy expectations, to record significant economic growth across the year.
Several factors could impede global economic growth in 2017, according to Today. Firstly, newly-elected US President Donald Trump will take office this month. He is expected to implement various anti-globalist policies which could hurt international trade. For example, Trump has expressed support for withdrawing the US from global trade agreements such as the Trans-Pacific Partnership (TPP).
Secondly, this anti-globalist fervour is also sweeping over Europe and if this continues in 2017, it may further limit international economic expansion. In 2016, British and Italian citizens voted against the EU in referendums. France, the Netherlands and Germany are due to go to the polls in 2017. Anti-EU movements are gaining strength in all of these countries, so these elections could bring results that further damage free trade. This is because victories for protectionist movements in Europe could create extra obstacles for businesses, limiting their ability to operate within a global economy.
Thirdly China, which has been the world’s fastest-expanding economy for years, is now experiencing a slowdown. Its economic growth came in at 6.7% in 2016, dipping under the 7% mark for the first time since the global economic crash and a Chinese government-run think tank believes growth will drop to 6.5% in 2017. Many nations, especially those in the developing world, rely on Chinese business, so an economic slowdown in the People’s Republic could also impede worldwide economic expansion.
However, experts note, the Chinese government is currently implementing economic reforms. Speaking on this, UOB Economist Francis Tan commented: “There will be step-ups in economic reforms … The recently concluded Central Economic Work Conference in Beijing gave us some hints of are what to come: Supply-side reform, proactive fiscal and monetary policies, stable RMB, cutting excess industrial capacity, destocking, lowering corporate costs, curbing asset bubbles.” These policies could stabilise China’s economic growth, as long as it deals effectively with the increasing capital outflows inspired by the slowdown, benefitting Asian countries which rely on China for trade.
Despite these factors, ASEAN economies could experience strong growth in 2017. Explaining why, CIMB Private Banking Economist Song Seng Wun said: “ASEAN… will be chaired by the Philippines [in 2017], and their very outspoken strongman of a President is now more friendly to China than any other previous… ASEAN chairman. So that in itself will also create all kinds of opportunities.” Concurring, HSBC Economist Joseph Incalcaterra, said there is “hope that [the Philippine] President… will make a strong push for further integration” in ASEAN, helping it recover from TPP’s demise.
Continuing, Incalcaterra said: “After all, it is in the interests of the Philippines to promote services liberalisation given its sizeable surplus labour force, much of which are trained in professions such as nursing, which is in high demand in other ASEAN economies.” Turning his attention to how the implementation of the ASEAN Economic Community (AEC), via the formation of trade relationships with external partners, could benefit the region, he noted: “With TPP unlikely to see the light of day anytime soon, Regional Comprehensive Economic Partnership (RCEP) is the hot topic in Asian trade.
“Despite talk of it being ‘China-led’, it is actually an initiative born from ASEAN’s current free trade agreements… With increased protectionism in the West, deals such as RCEP provide one source of trade stimulus. However, seeing that ASEAN is ultimately negotiating RCEP as a single entity, increased integration at home is imperative to ensure that RCEP works to the region’s benefit, by strengthening and not dividing the regional supply chain.” In a recent report, the World Economic Forum hailed ASEAN’s willingness to trade globally, suggesting that the region is open to deals like the RCEP.
Capitalising on potential
ASEAN holds incredible economic potential and once its economies are integrated, it is set to become the world’s fourth largest economy by 2030. Evidence suggests that despite a rocky start, the AEC’s future still looks bright, implying that domestic integration will continue in 2017. As long as China’s economic reform policies prove effective, ASEAN could increase economic growth in 2017 despite unfavourable headwinds and even without the People’s Republic, the region’s fortunes look bright.
Image by Gunawan Kartapranata.