The global economy and markets took a few punches in 2023 but remained broadly stable. For 2024, our predictions is soft landing (tightening the monetary policy) in the US and EU, consolidation in China, and a mild recovery in ASEAN. The region has long attracted foreign inflows, but two push factors have accelerated that move since 2017 - de-risking since the onset of US-China tensions, and next, supply chain reconfigurations brought about by the pandemic. While the region might be unable to absorb or replace all the displaced production capacity from China, ASEAN-6 countries offer unique advantages. Singapore has been the key beneficiary in terms of quantum of flows (foreign funds), followed by Vietnam and Indonesia. Electric vehicle components, electronics supply chain, and green technologies are few of the key emerging opportunities.

Growth rebound, supported by bottoming electronics cycle and recovering tourism
2024 should be a better year for ASEAN-6 growth. We see annual real GDP growth recovering to 4.7% in 2024, up by 50bps from 2023’s deceleration to 4.2 which will be driven by trade-oriented economies. ASEAN-6’s good exports, especially electronics, are poised to recover modestly in 2024, after a challenging 2023. Concurrently, DBS Group Research expects international travel and tourism recovery to continue in 2024, but with moderate effect from reopening tailwinds (economy activity).

Inflation contained and within targets
On the other hand, ASEAN-6’s inflation retreated over the course of 2023, and we expect headline inflation to be contained and within targets for inflation targeting economies, but with mixed directionality in 2024. Food and fuel, which together account for at least 50-60% of consumer price inflation basket (with food at a sizeable 20-40%), will be key to regional inflation dynamics. The correction in global food and energy prices is likely to temper inflationary pressures, for instance in Indonesia, Philippines, and Singapore, barring unexpected upside supply-side shocks to global commodity prices.

Exogenous shocks warrant attention during geopolitical uncertainties and weather disturbances. Ocean container and freight costs have been inching up in the past fortnight as carriers draw caution on transits through the Red Sea. Any material passthrough to commodity prices will impact the food and fuel components. El Nino onset and food supply curbs by key producing countries have kept prices of foodgrains (particularly rice) and cereals elevated, hurting purchasing power.
Limited urgency to front run the US Fed

Three factors will determine the ASEAN policy direction in 2024 – domestic inflation, financial stability, and global policy outlook. Proactive monetary tightening that began in 2022 and concluded in 2023 has helped to anchor regional inflation expectations and contain second-round effects from unexpected supply- side shocks. Subject to exogenous shocks, the lagged impact of the cumulative tightening is likely to continue restraining core inflation pressures and promote price stability within the central banks’ inflation target ranges in 2024. Consequently, real rates were back in positive territory by end-2023, led by Indonesia and Thailand.

Indonesia: A shift in the political leadership
Amongst the ASEAN-6 countries, Indonesia is gearing up to hold its presidential elections in February 2024, after a decade under President Jokowi’s presidency. The new government will assume office in late Oct24.

Efforts to revitalize the manufacturing sector, particularly in the metals industry, have been successful. Significant nickel deposits have attracted ecosystem players, leading to the construction of smelters and electric vehicle battery production, concurrent to the authorities’ push to expand the domestic EV market and strengthen the infrastructure backbone.

Average GDP growth in 1Q-3Q23 stood at 5.1% yoy, in line to meet our full year forecast at 5% y/y. The upcoming 3-4% increase in minimum wages, election campaign spending boost to consumption in early part of the year followed by Ramadhan dan Eid Al fitr, higher allocations towards social assistance and food security programs are expected to support consumption, just as inflation eases. Frontloaded capex projects in the first three quarters of 2023, completed within the outgoing President's tenure, are likely to be accelerated before the political transition in Oct 2024.

Inflation is expected to average within the revised 1.5-3.5% target range in 2024, barring any energy shocks necessitating a relook of local fuel subsidies. Additionally, there is a growing debate on the timing of Bank Indonesia's (BI) rate-cutting cycle. Some expect a calibrated exit plan, demonstrating a lower urgency to lower rates to preserve financial stability. Measures to attract rate-sensitive dollar flows via capital management are likely to continue to boost the reserves position.

For details, please refer to Indonesia 2024 Outlook: Higher gear.

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ASEAN-6 2024 Outlook: Cautious optimism