A strong fiscal position from years of surplus will allow government spending to support demand in Singapore over the year to come. Continual investment in education will strengthen its pool of home-grown talent so as to drive innovation and capacity building, according to Cebr’s latest Economic Insight: South East Asia report for ICAEW.  The report provides ICAEW’s 142,000 members with a current snapshot of the region’s economic performance. We focus on the economies of the Association of South East Asian Nations (ASEAN), namely Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

 

Mark Billington, Regional Director, ICAEW South East Asia, said: “Singapore has a very strong fiscal position from years of surpluses, and is now using this to finance pro-growth spending. Extra student grants, better healthcare, and grants for SMEs should also drive growth in the longer term.”

 

“However, as a highly developed economy, Singapore will not enjoy the same rapid GDP growth rates as its emerging neighbours. Investment in education and building human capital should therefore remain a priority. The Government’s announcement in February that it is aiming to boost enrolment through bursaries is a positive step which should hopefully help boost the nation’s pool of home-grown talent.”

 

In the meantime, the rest of ASEAN is looking at a challenging year ahead. Against the backdrop of a recent emerging markets sell-off, potentially rising interest rates attracting investors back to the developed world, and a slowdown in China, less developed economies are struggling with commodity dependence. Meanwhile, developing neighbours such as Indonesia and the Philippines are striving to make the transition to an advanced-economy mix of exports.

 

Two things must happen to allow this progress from a dependence on commodity exports to high-value manufacturing – government-led investment in education and skills and private-sector-led large-scale investment in production.

 

Governments need to look at increasing education investment at the tertiary level, particularly in developing engineering and science skills in order to move up to the higher tiers of production. Once the foundation of a highly educated workforce is set in place, the extent to which high-value sectors will thrive will depend partly on the inflow of foreign direct investment.

 

Charles Davis, ICAEW Economic Adviser and Cebr Director said: “Investment is not just about  building plants and creating capacity that way. It is just as necessary that foreign firms setting up new sectors in less-developed economies transfer knowledge and upskill workers so they can produce higher value added goods and services.”

 

“In the long term, as these economies grow wealthier, foreign direct investment will increasingly be driven by consumption rather than production, as the large populations of South East Asia should provide increasing numbers of affluent consumers.”

 

Other findings include:

 

• Indonesia faces risks and softening of investor confidence owing to political uncertainty  

 Uncertainty over the nation’s future developments in view of ongoing elections present some risks and softening of investor confidence, thus the country may struggle to draw investment back in the short term. Growth projections for Indonesia are revised downwards from 5.6% to 5.1% for 2014.

 

• Philippines still faces unemployment problems

 Domestic instability in the Philippines remains a key risk to growth. While reconstruction work from the aftermath of Typhoon Haiyan and the nation’s trading links with the US are expected to provide a boost to the Philippines’ growth, unemployment continues to drag on its domestic demand and investor confidence.

 

• Vietnam’s innovation activities continue to fuel growth but regional territorial disputes could dampen investor confidence

Economic growth in Vietnam continues to look rosy as investment pours in from both government and private sector fronts. It still has significant growth in the mining sector suggesting dependence on commodities in the short term. Overall economic growth is projected to hit 5.8% by 2016. However, regional territorial disputes could dampen investor confidence if they seem likely to stay escalated.

 

For more information and a copy of the report, please visit ICAEW’s website or watch Cebr Director Charles Davis discuss the findings with Bloomberg News here. The report has also received widespread press attention across the region, including the Singapore Business Times.