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Overall outlook for ASEAN economies this year positive: Expert

Countries like Singapore that are more exposed to the United States will benefit greatly from its recovery, says Centennial Asia Advisors, Singapore's CEO, while speaking at the annual Regional Outlook Forum.  

SINGAPORE: The overall outlook for ASEAN economies in 2016 is positive, according to Mr Manu Bhaskaran, CEO of Centennial Asia Advisors, Singapore.

Speaking at the annual Regional Outlook Forum 2016 on Tuesday (Jan 12), Mr Bhaskaran pointed out that their economic trajectories will be determined by the balance among several forces.

For example, the impact of recovery in the United States, Europe and Japan, against the uneven and probably negative spill-overs from China's economic challenges.

"Countries in ASEAN that are much more exposed to the United States in particular, obviously will do well. I think Singapore is one of those countries that will benefit greatly from a recovery in the United States," said Mr Bhaskaran on the sidelines of the event. 

He noted: "We are significantly exposed to the world economy. I think more than 80 per cent of total demand in the system is actually external demand, not domestic demand, so the benefits from global recovery are going to be very considerable and should help our economy.

"Unfortunately, we also have domestic headwinds. The real estate sector, I suspect, is going to correct more and there will be an impact on the economy - through real estate transactions, through a wealth effect, through an impact on the construction sector.

"In addition, we have a local corporate sector that has had to grapple with high labour costs, problems with labour availability because of necessary policy interventions, with a loss of cost-competitiveness over the last three years. These are not adjustments that will be done very quickly. It takes time and I think 2016, 2017 will be periods of adjustment."  

TURMOIL IN CHINESE MARKETS

However, Mr Bhaskaran also warned about possible turmoil in Chinese markets.

He said: "The impact is first felt through China's demand for imports, but a lot of the imports have been commodities and I think the big hit for commodities in terms of the price effect, volume effect ... actually has already been felt in terms of the negative effect.

"Secondly, there is a tourism effect. If you look at the numbers, tourism from China is making a huge comeback. You're getting extraordinary strong numbers in Thailand, in Malaysia and so on. So I think that it will continue to be positive despite the problems in China, because the one thing that is still doing quite well in China is household income, wages, and people are going out and spending as a result. So you have a currency impact which we should not underestimate.

"I suspect the Chinese yuan will be weakened cautiously over time. That is going to create ructions in foreign exchange markets and you've seen how damaging that can be. So I think that's something we need to watch out for and probably need to manage more cautiously." 

BENEFITING FROM OTHER DEVELOPMENTS

Other speakers at the forum said ASEAN can also benefit from other developments.

An example is China's proposed "One Belt, One Road" initiative, which seeks to improve connectivity across 65 countries via an overland belt that links China with Europe, and a sea route that passes through Southeast Asia, Africa and the Middle East.

"China will continue to work with ASEAN countries and try to develop cooperation, especially now (that) China wants to push for the One Belt, One Road initiative," said Dr Jia Qingguo, the School of International Studies' Dean at Peking University. "I think this is an initiative that would benefit both China and Southeast Asian countries." 

"China has technologies and also managerial skills in a way, and Southeast Asian countries, quite a number of them badly need infrastructure improvements. So they can work together in the best interests of both sides, so there is a great potential economically to engage in greater economic cooperation," he added.

Another recent development is the ASEAN Economic Community (AEC) which was formed on Dec 31, 2015. It aims to create a single market with free movement of goods, services, investment, skilled labour and capital. 

"AEC will increase employment and increase our business opportunities. So most important is implementation, how to open the market, how to kick out non-tariff barriers within the next 10 years," said Mr Junichi Sasaki, CEO of the ASEAN and South West Asia Bloc at Itochu Corporation.

Business leaders at the forum also pointed out other hurdles that need to be addressed - for example, more clarity for transactions and licensing requirements. 

COMBATING ISLAMIC STATE

Speakers at the forum also shared insights on tensions that ASEAN will likely confront. These include threats from Islamic State and territorial disputes in the region.

According to academic Ms Sidney Jones, a director from the Institute for Policy Analysis of Conflict in Indonesia, it is not a flood of returning fighters from Islamic State who pose the biggest risk, but members from its local support network who are eager to undertake attacks.

While local members lack the capacity to mount attacks, Ms Jones said the intent to do so could increase under orders from Islamic State leadership.

Another academic spoke of his findings of detainees in Malaysia. 

"In my interviews with some of those detainees accused of being associated with ISIS or on their way to Syria, I found that they have this perception that ISIS is the messiah to solve the conflict," said Dr Maszlee Malik, an assistant professor in the Faculty of Islamic Revealed Knowledge and Human Sciences at the International Islamic University Malaysia.

Dr Maszlee said to address the threat, people need to have hope that the conflicts can be resolved.

He said: "As long as there is conflict in the world, there will be terrorists. As we know, ISIS is part of the reaction to conflict in Syria and Iraq, so we need to address both, the root cause and also the symptom.

We need to give hope to the people that all the conflicts could be solved diplomatically and through democratic means and through civil means, but we need to be serious with it. We need to really convince not only Muslim youth, but I would say people all around the world that peace is still meaningful, peace is still a hope, but again, it requires a holistic and comprehensive effort from all parties." 

SOUTH CHINA SEA DISPUTES  

Analysts are also calling for more cooperation among government leaders to manage disputes in the South China Sea. China claims most of the South China Sea - through which more than US$5 trillion (S$7 trillion) of world trade ships every year - while Vietnam, Malaysia, Brunei, the Philippines and Taiwan have rival claims.

"A Code of Conduct probably would help freeze the interactions on the disputes, territorial disputes, maritime disputes," said Dr Jia. "The current set of interactions is quite negative; if it's not controlled, if it's not well managed, then it may get into a military conflict, which is in the worst interests of all the parties.

"Now we have a pending case initiated by the Philippines in the court. I believe that probably the best alternative is for the Philippines to negotiate with to talk to China instead of going to the court to settle this business."

Dr Jia said that freezing the interactions on the disputes would give ASEAN time to think about how to develop cooperation.

Now into its 19th year, the forum is organised by ISEAS-Yusof Ishak Institute and seeks to raise understanding of key developments in Southeast Asia.

This year's forum features six sessions on topics such as regional economic and political trends, and saw about 550 attendees, including academics, Government and business leaders.