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Asia Pacific Economic Forecast Summary

Core Content Overview

This document provides an economic forecast for several countries in the Asia Pacific region, including Malaysia, the Philippines, Taiwan, and Vietnam, highlighting their respective economic challenges, growth drivers, and policy responses. The report is authored by Deloitte economists and outlines macroeconomic trends, policy decisions, and external factors influencing economic performance.

Main Points and Key Information

Malaysia

• Economic Growth: Moderating, with Q2 GDP growth at 4.0%—the slowest since 2009.
• Domestic Demand: Resilient, with private consumption growing 6.4% and fixed investment increasing sharply to 6.1% in Q2.
• External Sector: Net exports and the agricultural sector continue to drag growth. The current account surplus is at a record low.
• Monetary Policy: The Bank Negara Malaysia (BNM) cut interest rates in July for the first time in seven years to support growth, but may not ease further due to risks from high household debt and capital outflows.
• Fiscal Challenges: The government is increasing spending on infrastructure and social welfare, leading to a projected fiscal deficit of 3.1% for 2016, potentially rising by 0.5 percentage points.
• Household Debt: Increased by 1.5 times between 2008 and 2014, reaching 89.9% of GDP. Non-performing loans and credit card defaults rose significantly.
• Uncertainties: External risks such as China's slowdown, weak global demand, and potential Fed rate hikes are affecting the outlook.

The Philippines

• Economic Performance: Q2 GDP growth of 7.0%—the fastest since 2013. Consumer spending and government investment remain strong.
• Tax Reforms: The government plans to reform income tax brackets, reduce the top income tax rate from 32% to 25%, and potentially raise VAT and excise duties.
• Fiscal Deficit: Expected to rise to 2.5% of GDP in 2016 due to increased spending, though exceeding the target may attract scrutiny.
• Geopolitical Risks: President Duterte's strong rhetoric against the US and China has raised concerns about international relations. The US is a key ally and investor, and tensions may affect FDI and trade.
• Stock Market and Currency: The stock market has seen losses, and the peso has weakened due to diplomatic tensions and reduced foreign inflows.

Taiwan

• GDP Growth: Real GDP growth in Q2 2016 due to a rebound in exports, driven by improved competitiveness and overseas demand, especially from China and Hong Kong.
• Monetary Policy: The central bank has cut interest rates four times since late 2015, supported by low inflation and a weaker currency.
• External Factors: A strong external surplus (over 13% of GDP) provides stability, reducing the risk of capital flight and currency fluctuations.
• Long-term Outlook: Modest growth is expected in the second half of 2016, with a modest acceleration in 2017.
• Risks: Demographic challenges such as low birth rates and limited immigration are expected to slow growth. Increased competition from China necessitates a shift toward final markets and service industries.

Vietnam

• Growth Target: Aiming to become an upper-middle-income economy by 2035.
• Growth Performance: Real GDP growth dipped to 5.5% in the first half of 2016 from 6.7% in 2015, due to a severe drought and weak industry growth.
• Sector Impact: Agriculture, forestry, and fisheries declined by 0.8% in the first half of 2016, with the primary sector employing nearly half of the workforce.
• Reforms: Vietnam has initiated economic reforms, partly under pressure from the Trans-Pacific Partnership (TPP), but the pace of reform has been slow.
• External Challenges: A complicated external environment, including China's economic slowdown and depressed commodity prices, poses risks to growth.
• Future Prospects: Innovation and continued reform are essential for sustained growth, with a focus on developing service industries and improving productivity.

Key Authors and Contact Information

• Malaysia: Dr. Rumki Majumdar
• The Philippines: Akrur Barua
• Taiwan: Dr. Ira Kalish
• Vietnam: Lester Gunnion

For more information, contact the respective authors or visit Deloitte University Press for additional resources.

Conclusion

The Asia Pacific region faces a mix of domestic and external challenges, with Malaysia struggling with slowing growth and fiscal risks, the Philippines enjoying strong economic fundamentals but facing diplomatic hurdles, Taiwan showing signs of recovery with a focus on exports and monetary easing, and Vietnam aiming for long-term growth through reforms and a shift in economic focus. Each country's outlook is shaped by unique economic and political dynamics, with policy responses playing a crucial role in mitigating risks and supporting growth.