Asean economies show resilient growth

The economies of Association of Southease Asian Nations (Asean) have shown resilience in growth in the second quarter of 2011, according to the latest Asian Business Cycle Indicators (ABCIs).

However, the general trend masks diverse country performances. For instance, Malaysia and Thailand show upward movement in business cycles.

Activity is picking up in Malaysia on the back of sound export performance particularly electronics and robust private consumption.

Thailand, though had experienced a temporary impact of the Great Touhoku Earthquake in Japan, is recovering led by strong investment.

Indonesia and Singapore maintained their growth momentum though not as robustly as in Malaysia and Thailand. Sound private consumption and investment, as well as stable business sentiment support growth despite weaker government spending
in Indonesia.

Continuing capital inflows and their volatility still constitute a challenge for policymakers. In Singapore, strong manufacturing output has contributed to the positive outlook.

In the Philippines, the weaker outlook is due to a slowdown in export growth and remittances partly as a result of the Great Touhoku Earthquake and geo-political tensions in the Middle East and North Africa.

Some signs of slowing appeared in China and India. Weaker consumption and sluggish exports to OECD countries will be the reason in China. Weak domestic sales (in particular cars) and the adverse impact of commodity price hikes explain the weaker prospect in India.

A policy challenge in the region is to cope with inflationary pressures. Although headline inflation has peaked out in most Southeast Asian countries except Vietnam, inflationary pressures still remain – as core inflation rates are high in Southeast Asia.

Interest rates have been raised in most countries and additional increases are expected. In addition to interest rates, allowing more flexibility for exchange rates would be an option for some countries, such as Indonesia.

The Great Touhoku Earthquake in Japan has had a temporary impact on activity and exports in some countries, such as Indonesia, the Philippines and Thailand but in general the magnitude of the negative impact appears to have so far been