CARI Captures Issue 684: A Look Back at 2024

1. SOUTHEAST ASIA FACES POTENTIAL ECONOMIC CHALLENGES FROM TRUMP PRESIDENCY
   (21 November 2024) Southeast Asia faces potential economic challenges from Donald Trump’s proposed tariffs, including a 60% duty on Chinese imports and up to 20% on imports from other regions. Five of the six largest ASEAN economies have trade surpluses with the U.S., with Vietnam particularly exposed due to its role as a manufacturing hub for firms bypassing previous tariffs. Thailand’s economy could suffer a USD 4.6 billion impact, while nearly 40% of Cambodian exports rely on U.S. markets. However, the region benefited from trade diversion during Trump’s first term, attracting investment and manufacturing relocation from China, Japan, South Korea, and the U.S. Analysts suggest opportunities for Southeast Asia to capitalise on trade substitution, as well as to tighten their anti-dumping measures against Chinese goods. Electric vehicle manufacturing and intra-ASEAN trade could provide economic buffers to Trump’s tariff plans. Currency devaluation, including declines in the Thai baht and Malaysian ringgit, and global monetary shifts may further complicate the region’s economic landscape. Governments are urged to diversify trade relations, support local firms in accessing U.S. markets, and improve trade facilitation to build resilience.
2. SOUTHEAST ASIAN INTEREST RATES DIVERGING AFTER US FEDERAL RESERVE SLASHES RATES
   (16 October 2024) Interest rate paths in Southeast Asia are diverging after the U.S. Federal Reserve cut rates last month, with export-driven economies like Thailand and Malaysia expected to hold off on easing until 2025, while domestic demand-driven economies like Indonesia and the Philippines are moving towards further cuts. Indonesia, with a 5% GDP growth rate but weakening household consumption, has already cut its rate to 6% and may lower it again this year. Inflation has slowed to 1.84%, suggesting economic lethargy. Analysts predict the Philippines will also cut its key policy rate to 6% in response to easing inflation. Meanwhile, Malaysia and Thailand, both with current account surpluses and appreciating currencies, are under less pressure to reduce rates soon. Thailand’s central bank, focused on managing household debt, is resisting calls for a rate cut despite public pressure. The Malaysian central bank has held its rate at 3% and is expected to do so through 2025.
3. LAO PDR FACING SEVERE ECONOMIC DOWNTURN MARKED BY ESCALATING INFLATION
   (09 September 2024) Lao PDR is facing a severe economic downturn marked by escalating inflation, a sharply depreciating currency, and high levels of external debt. Inflation in August 2024 stood at 24.3%, continuing a 28-month streak of double-digit rates, though down from a peak of 41.3% in February 2023. The kip has lost over half its value against the dollar and Thai baht in three years, exacerbating the impact on purchasing power and commodity costs. The IMF reported Lao PDR had the highest inflation rate among Southeast Asian countries at the end of 2023, surpassing even Myanmar. The central bank’s monetary tightening, with rates reaching 10.5%, has not stabilised the currency. Laos’ debt repayments surged to USD 950 million in 2023, with total government debt at 115% of GDP. A significant portion of this debt is linked to a USD 6 billion railway project financed largely by China. Experts suggest Lao PDR should renegotiate its debt and potentially seek IMF assistance, as the current economic model, reliant on foreign investment in natural resources, is contributing to instability.
4. SOUTHEAST ASIAN COUNTRIES RAISE BARRIERS AGAINST CHEAP CHINESE IMPORTS
   (31 July 2024) Kurniadi Eka Mulyana, a 26-year-old worker in Bandung, West Java, was laid off in March due to declining sales at his textile factory, attributed to competition from TikTok Shop’s Chinese imports. This year, 49,000 workers in Indonesia’s textile, garment, and footwear sectors have been laid off across Banten, West Java, and Central Java. In response, Indonesian Trade Minister Zulkifli Hasan proposed up to 200% duties on imported fabrics and other goods. Southeast Asian countries, including Malaysia and Thailand, are also raising barriers against cheap Chinese imports. Thailand imposed a 7% VAT on low-value imports, and Malaysia added a 10% sales tax on online purchases under MYR 500. Southeast Asia’s trade deficit with China is widening, with Malaysia’s deficit growing from USD 3.1 billion in 2020 to USD 14.2 billion in 2023, and Thailand’s from USD 20 billion to USD 36.6 billion. Indonesia posted a USD 5 billion non-oil and gas trade deficit with China in the first half of 2024. China is redirecting exports to Southeast Asia due to Western trade tensions, impacting local industries like Thailand’s steel sector, where domestic production fell by 497,000 tonnes last year.
5. SOUTHEAST ASIA’S IPO MARKET SEES 71% DECLINE IN MARKET CAPITALIZATION IN FIRST HALF OF 2024
   (08 July 2024) In the first half of 2024, Southeast Asia’s IPO market saw a significant decline, with market capitalization dropping 71% to US$5.8 billion. The region recorded 67 IPOs, down 21.2% from the previous year, raising US$1.38 billion, a 59.4% decrease. Only one large IPO exceeded US$1 billion in market capitalization and raised over US$200 million, compared to three large IPOs the previous year. This decline continues a downward trend that began in late 2022, influenced by geopolitical instability and high interest rates. Indonesia experienced the steepest drop, with market capitalization of listings falling 92.2% to US$1.22 billion and the IPO proceeds raised down 89.1% to US$248 million. Despite this, there is cautious optimism for improvement post-2024, with potential for AI-related IPOs and a return of REIT listings as interest rates decrease.
6. CHINESE TECH SUPPLIERS EXPAND PRESENCE IN ASEAN AMID GEOPOLITICAL TENSIONS
   (31 May 2024) Chinese tech suppliers are increasing their presence in Southeast Asia, where Taiwanese and other rivals have long been helping the likes of Google and Apple expand production. For instance, Google has selected Chinese supplier Goertek to produce Pixel watches in Vietnam starting in 2025, a role previously held exclusively by Taiwanese companies. Additionally, BYD is bidding to manufacture Pixel phones in Southeast Asia, though no decision has been made yet. The strategic shift is driven by business considerations such as quality, service, and competitive pricing. The presence of Chinese suppliers in Vietnam has grown significantly, with 37% of Apple’s suppliers in the country being Chinese. Political tensions and economic slowdowns in China are also pushing Chinese companies to seek growth opportunities abroad. Investments by Chinese and Hong Kong firms in Southeast Asia surpassed those from Singapore in 2023, reflecting a systematic diversification effort by Chinese suppliers. The expanding supply chain in Southeast Asia may draw increased scrutiny from the U.S., particularly concerning trade practices and the growing trade surplus with the region.
7. GREEN TRANSITION IN ASEAN COUNTRIES FACE HURDLES DUE TO GREENFLATION CONCERNS
   (25 March 2024) Several ASEAN countries are facing hurdles in their renewable energy transitions, largely due to concerns over ‘greenflation’. Greenflation occurs when fossil fuels are discarded in favour of more expensive low-carbon technologies. For instance, Indonesia recently trimmed its future targets for renewable portions in the country’s primary energy mix. The cuts in the country’s renewables targets were attributed to concerns over burdening the poor with expensive R&D and energy transition costs. In neighboring Malaysia, government officials have warned that a weaker ringgit will make it more expensive to import technologies, equipment, and expertise needed for large-scale decarbonization projects. In Viet Nam, meanwhile, coal imports soared 217% year-on-year in January 2024 year on year, despite Vietnam being Southeast Asia’s leader in terms of solar and wind power capacity.
8. SOUTHEAST ASIAN MARKETS POISED FOR TURNAROUND IN 2024 ON BACK OF CHEAP VALUATIONS
   (22 January 2024) Southeast Asian markets are poised for a turnaround in 2024 on the back of cheap valuations and potentially high economic growth. This follows sluggish growth for said markets in 2023. According to research by Maybank Investment Banking Group, improving growth, rising exports, a pick up in manufacturing, and a better-than-expected outlook by Taiwan Semiconductor Manufacturing Company last week all mean that Southeast Asia markets are poised for a better year. The MSCI Southeast Asia Index dropped a little over 3% in 2023, compared with the more than 20% rise in the broader MSCI World Index. It was noted that even a potential US recession will not dampen optimism for Southeast Asian markets, with certain countries such as Indonesia, Malaysia, and Thailand strongly driven by domestic consumption. Meanwhile, other economies in the region are placed to benefit from their growing presence in the chips and electric vehicle industries.
9. PRABOWO SUBIANTO ON TRACK TO WIN INDONESIAN PRESIDENTIAL ELECTION BASED ON QUICK COUNT OF RESULTS
   (14 February 2024) Former army general Prabowo Subianto is on track to win Indonesia’s presidential election held on 14 February, 2024, based on a quick count of the final results. As of 8 p.m. Jakarta time, the pollsters’ quick counts, based on about 90% of votes counted at sample polling stations, indicate Prabowo winning 57% to 59% of the total vote. In comparison, former Jakarta Govenor Anies Baswedan secured 24% to 26% of the total vote, while former Central Java Governor Ganjar Pranowo secured 16% to 17%. To win the presidential election, a candidate must gain the majority of total votes and more than 20% in at least half of the 38 provinces. If a candidate is unable to secure this, a second round is held on 26 June. The General Elections Commission has until 20 March to announce the final results.
10. LAO PDR FRAMES THE THEME OF ITS 2024 ASEAN CHAIRMANSHIP AS ‘ENHANCING CONNECTIVITY AND RESILIENCE’
    
    (21 December 2023) Lao PDR has framed the theme of its 2024 ASEAN Chairmanship as ‘Enhancing Connectivity and Resilience’. At the Chairmanship handover ceremony in September 2023, Lao PDR’s Prime Minister Sonexay Siphandone highlighted that Vientiene would focus on further consolidating the ASEAN Community including enhancing connectivity and economic integration, narrowing the development gap, advancing digital transformation, promoting people-to-people-exchanges, as well as promoting climate resilience and health development. In preparation for its Chairmanship, Laotian authorities have started work on the necessary infrastructure including improving roads and airports, meeting venues, communication and internet facilities, tourism destinations, and accommodation. ASEAN Dialogue Partners have also offered their support, such as through the provision of vehicles and IT systems, capacity building, and English language training.