Indonesia and Malaysia Saw Strong Economic Growth in 2022

Pacific Money | Economy | Southeast Asia

The Malaysian financial system closed 2022 on a powerful word, with the fourth quarter GDP posting year-over-year development of seven p.c. Growth for the whole yr was 8.7 p.c. Indonesia’s financial system grew extra slowly at 5.3 p.c, however it was nonetheless the quickest price in 9 years. Coming on the heels of equally sturdy financial development within the Philippines, 2023 seems to be shiny for main Southeast Asian markets. But why was 2022 such a banner yr for most of the area’s economies? And can this efficiency be sustained over the long run?

The distorting impact of the COVID-19 pandemic accounts for a few of what we’re seeing. Economies throughout the area both slowed down loads or contracted between 2020 and 2021; so it’s not that stunning to see quick development within the fast post-pandemic interval as financial exercise catches as much as the place it was. 2022 can also be distinctive in that many international locations relaxed journey restrictions, unleashing pent-up demand that stimulated service sector exercise and consumption. This stage of spending is unlikely to be a constant characteristic of financial development as financial savings are drawn down and other people return to their regular consumption habits.

When we drill down into the information, the sturdy 2022 figures for each Malaysia and Indonesia are certainly pushed partly by client spending. In Malaysia, personal consumption was up 7.4 p.c within the fourth quarter of 2022. In Indonesia, family consumption rose 4.9 p.c for the yr, with the most important will increase in transportation (9.4 p.c) and eating places and lodges (6.6 p.c). Clearly, individuals are going out once more and spending cash on meals, journey, and different diversions and this has given a lift to the financial system. An analogous revival in consumption helped propel development within the Philippines to 7.6 p.c final yr.

The main distinction is that, along with renewed client demand, Malaysia and Indonesia additionally benefited from surging commodity exports. At the top of 2022, Malaysia’s tradable items account had a MYR 51.7 billion surplus ($11.9 billion). Same story in Indonesia, the place exports reached $292 billion final yr as international demand for coal and palm oil spiked. Total exports in 2019, the final full yr earlier than the pandemic, had been solely $168 billion. Indonesia closed out 2022 with a surplus in tradable items of round $54.5 billion.

Strong commodity exports in 2022 helped bolster the financial system whereas additionally insulating Indonesia and Malaysia from the identical stage of inflation and foreign money depreciation that hit many elements of the world and the area. For 2022, headline inflation in Malaysia averaged simply 3.3 p.c, and in Indonesia 5.5 p.c. The political and financial constructions of each international locations allowed them to buffer customers considerably from the worst upward worth shocks, particularly these associated to power.

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Indonesia did finally give in and reduce gasoline subsidies within the latter half of the yr which helped speed up inflation. But as some extent of comparability the Philippines, which is a internet power importer, noticed inflation hit 8.1 p.c in December. Despite sturdy financial development, the Philippines is extra weak to inflationary pressures and has much less capacity to manage the worth of staple items than both Indonesia or Malaysia.

There appears little doubt that almost all of Southeast Asia will keep away from recession in 2023, with main economies driving a wave of sturdy development. One of the principle drivers throughout the board has been a revival in client demand, however they’re experiencing the impacts of worldwide commerce and inflation fairly in another way. High commodity costs led to windfall export surpluses in Indonesia and Malaysia whereas worsening inflationary pressures within the Philippines.

With commodity costs cooling we shouldn’t count on exports to contribute as a lot to Malaysian or Indonesian GDP in 2023, or imports to be as a lot of a drag on the Philippines. Growth will most likely rebalance extra towards consumption and funding, and can probably not be as quick. It shall be notably essential to see whether or not client spending is sustained at present ranges or falls, and by how a lot. All of this underscores that although these three economies grew quickly in 2022, they didn’t all develop in the identical approach and that has essential implications for the place they is likely to be headed in 2023.