SE Asian’s 1Q24 growth driven by electronics yet faces uncertain future


SOUTH-EAST Asian (SE Asian) economies are showing mixed growth due to strong performance of the electronics sector but sustainable growth remains unclear due to potential challenges in domestic demand, the Institute of Chartered Accountants in England and Wales (ICAEW) reported.

Conducted by Oxford Economics, the research highlighted that while the electronics sector is a key driver, overall regional growth is projected to be 4% in 2024 and 2025, which was below the pre-pandemic average of 5%.

The global professional body for chartered accountants also reported that electronics exporters in SE Asia saw significant gains in the first quarter of 2024 (1Q24), benefitting from a recov- ery in global semiconductor sales,which increased by 15.3% year-on- year (YoY).

According to ICAEW’s report, Vietnam experienced an export growth of 16.8% YoY, while Singapore saw a rebound in non-oil domestic exports in April, with a 9.4% month-on-month increase, following a period of decline.

“Malaysia is expected to benefit from the electronics recovery in the second half of the year, given its position further down the elec- tronics value chain,” ICAEW said in a statement.

However, its impact was softer compared to other major semiconductor producers like Taiwan and South Korea.

Despite the positive performance of the electronics sector, the region faced challenges due to tight global monetary policies that are likely to constrain external demand.

The global growth forecast for2024 is 2.6%, which was lower than pre-pandemic levels, potentially dampening regional export growth.

“On the bright side, SE Asia’s tourism industry has seen steady visitor growth since November 2023, partly due to various visa- free travel programmes with China,” the statement added.

This growth in intra-regional travel was a positive sign, but supply-side constraints such as limited flight capacity and a shortage of hotel rooms could hinder the full potential of the tourism industry’s recovery.

According to ICAEW, domestic consumption in SE Asia showed unexpected resilience in 1Q24 but was unlikely to sustain this momentum due to ongoing tight monetary policies.

Local currencies’ persistent weakness against the US dollar has limited central banks’ abilityto ease monetary policies without risking further depreciation where Bank Indonesia had to raise rates to support the rupiah.

High borrowing and debt servicing costs were expected to constrain private consumption as consumers and businesses continue to consolidate and rebuild savings post-pandemic.

ICAEW reported that governments were also tightening their belts, with several countries, including Singapore and Thailand raising their taxes, while Malaysia planned to adjust fuel subsidies.

There was a potential relief on the horizon, as the US Federal Reserve (Fed) anticipated to cut rates in 3Q24, which could ease the pressure on SE Asian currencies and possibly allow local central banks to lower rates.

Malaysia’s economy grew by 4.2% YoY in 1Q24, driven by a strong electronics export sector anda surge in Chinese tourists during the Chinese New Year holiday.

However, this growth may not be sustainable, with challenges expected in maintaining domestic demand and managing external pressures.

Government consumption in Malaysia was expected to remain flat or decline, with planned budget adjustments and reductions in fuel subsidies aimed at addressing the budget deficit and public debt.

While the electronics sector offers some optimism for export growth, the full benefits may only be realised in the second half of the year.

The Malaysian ringgit’s weakness posed a challenge to easing monetary policy, despite low inflation rates which may be improved if Fed cuts rates, potentially enabling Bank Negara Malaysia to adjust its policy rates and support the economy.

  • This article first appeared in The Malaysian Reserve weekly print edition