2023 was full of surprises. The US economy defied gravity and dodged a recession. China’s reopening bounce was shorter and weaker than expected. Global interest rates rose further and higher than anticipated. Tech reclaimed its market leadership with the Magnificent Seven and breakthrough on artificial intelligence (AI). The Israel-Hamas war worsened the geopolitical uncertainty and fragmentation.
Maybank Research said today (Dec 14) in 2023, ASEAN was a defensive harbour but not immune to rising US interest rates and China’s lethargic reopening bounce.
ASEAN’s GDP growth slowed to 4% in 2023 from 4.7% in 2022, as exports and manufacturing weakened.
Domestic services, hospitality and aviation recovered and supported growth, even as China’s revenge
travel petered out by the third quarter. ASEAN FDI interest and approvals continued to rise, as MNCS reconfigure supply chains and de-risk from China.
Going into 2024, the outlook for trade-sensitive ASEAN economies is brighter with green shoots sprouting in exports and manufacturing. Maybank Research Regional Co-Head, Macro Research Chua Hak Bin forecasts ASEAN-6 GDP growth recovering to 4.7% in 2024.
The US appears headed for a soft landing, with recession risks and inflation receding. The Fed and other major central banks will likely cut interest rates by the second half, easing the pressure on ASEAN
currencies and widening the space for policy easing.
ASEAN’s export recovery will be supported by aggressive US fiscal spending and generous subsidies for
semiconductors and electric vehicles; normalisation in global consumer spending towards goods as revenge spending in services dissipates; a replacement tech cycle; falling US inventories; and an AI boom.
Rising FDI and added capacity from shifting supply chains will increase ASEAN’s leverage to a global trade recovery.
2024 will be about transitions. There will be major political transitions in Indonesia and Singapore. Indonesia will be holding presidential elections in February, a three-way fight which will likely stretch into a run-off between the top two contenders in June.
Maybank Research expects Indonesia’s GDP growth to remain resilient at 5.1% in 2024, despite the political uncertainty. Singapore will see current Prime Minister Lee Hsien Loong hand over power to his deputy Lawrence Wong by November 2024, before the 2025 general elections.
DPM Wong is expected to reflect the 4G policy tilt and recommendations from the Forward Singapore exercise in the February Budget.
2024 will be about implementation and execution. Malaysia is expected to undertake subsidy reforms and economic restructuring, following through on the New Industrial Masterplan and National Energy Transition Roadmap.
Singapore is speeding up its green transition, with sharp increase in carbon taxes and deployment of massive capital to prepare for climate change and increase imports of renewable energy. Indonesia will be building her new capital city Nusantara to replace the congested and sinking city of Jakarta.
Thailand will be rebooting and ramping up infrastructure projects – delayed by the elections – and launching a scaled-down digital wallet scheme.
The Philippines will be allocating and building up its infrastructure projects, with more funds allocated for its “Build Better More” program.
Vietnam will be the first in ASEAN to introduce the global minimum tax of 15%, significantly raising the tax bills for over 100 foreign companies. The additional revenue will be used to bolster other investment incentives, ensuring Vietnam’s position as the big winner from the supply chain shifts. And all of ASEAN are fine-tuning their policies to attract FDI, boost tourism and increase investments in renewable energy.
Maybank Research fixed income team forecast US rates to fall in 2024, with the 10-year US treasury yield sliding to 3.25% by year-end. They are mildly bullish on Malaysian government bonds and expect another good year, with a 5%-7% return.
They are mildly bullish on China bonds as the PBOC’s easing bias remains intact given structural slowdown. China’s GDP growth is projected to normalise to a slower clip of 4.4% in 2024 from 5.2% in 2023, as the authorities wean the economy away from reliance on property towards new growth engines such as advanced manufacturing.
Their fixed income team is neutral on Indonesia bonds as the positives on benign inflation, potential Bank Indonesia rate cut and strong fiscal discipline are offset by the rupiah’s vulnerability to external risk sentiments and higher bond supply.
They are neutral on Singapore bonds given an already low yield curve and the possibility of MAS reducing the S$NEER slope in the second half.
Maybank’s FX team expects the US dollar to be supported in early 2024 but start to weaken from the second quarter. The RMB will likely lag its peers amid concerns about China’s outlook. Within ASEAN, they expect some divergence, with the THB outperforming the IDR and PHP.
The recovery in global electronics demand could benefit the KRW, TWD and SGD. They recommend long KRW or TWD against the USD or CNY, and long SGD NEER. They expect the Bank of Japan to abolish yield curve control in the second quarter of 2024, which could lead to substantial upside to JPY.
Like 2023, there will be surprises and unforeseen shocks in 2024. The biggest known unknown and wildcard in 2024 will be a Trump victory in the US presidential elections in November. A Trump win could lead to sweeping policy changes, including a blanket 10% import levy, withdrawal of support for Ukraine and a reversal of Biden’s policies on renewables and electric vehicles.
The shift in FDI and supply chains to ASEAN may be suspended if the US imposes a universal tariff
rate. The world may become even more fragmented, if America withdraws funding and support from Ukraine and Asia.
Green shoots are sprouting but will be relying on good weather to bloom in 2024, Maybank Research said.
