Robust spending keeps growth on track

Bigger consumer spending will drive economic growth across entire swaths of Southeast Asia this year and next as consumer classes come online in much of the region, the World Bank said in a recently released report.

For example, overseas Filipino workers are sending bigger remittances back to the Philippines and making it possible for their families to spend more. Cambodia and Vietnam are exporting more textile products, which translate into higher incomes and more cash to spend domestically. Ongoing efforts in Myanmar to open up the country's closed economy are bearing fruit with enviable growth.

These developing economies are doing well, even if growth in the Philippines is down by a couple of percentage points from a year ago. Their larger and more developed neighbors are also growing, although the World Bank has cut its growth expectations for this year and the next for these economies.

On Oct 6, the World Bank slashed its forecast for growth in Indonesia and several other parts of East Asia and the Pacific.

The following day, the International Monetary Fund cut its own outlook for the global economy. The economic recovery around the world is continuing, said the IMF, but it is slower than expected. On a positive note, many of the imbalances that have had the global economy on the edge of a virtual precipice since 2008 have been drastically curbed.

The IMF also lowered its 2014 outlook for growth for Asia and the Pacific to 5.5 percent and to 5.6 percent for next year, but noted that "growth is expected to be driven by domestic demand". It said that favorable financial conditions and healthy labor markets would drive consumption. Export growth could also help, particularly if developed economies and China rebound, as the IMF expects.

The slower growth across the region is in large part driven by the slowdown in China, where the government is looking for sustainability.

The World Bank expects East Asia and the Pacific to grow 6.9 percent this year and the next, down from the 7.1 percent it had previously anticipated. Growth is likely to be slower in 2016 as well, the bank said.

Sudhir Shetty, World Bank chief economist for East Asia and the Pacific, said the outlook was one of "cautious optimism".

China continues to power much of the growth in the region. Even if slower than a few years ago, the country's GDP is still expanding at a prodigious rate.

Growth in China could decline to 7.4 percent this year and 7.2 percent next year, the World Bank said. And yet, "the contribution of consumption to GDP growth in the second quarter was the lowest in five years" at 2.4 percentage points. For that quarter, at least, investment once again emerged as the largest contributor to growth while efforts to rebalance the economy are ongoing.

"Measures to contain local government debt, curb shadow banking and tackle excess capacity, high energy demand and high pollution will reduce investment and manufacturing output (in China)," said the World Bank.

Growth across the developing countries in the region will likely slow to 4.8 percent this year, down from 5.2 percent in 2013, in large part due to slowdowns in Indonesia and Thailand. Indonesia was affected by a series of short-term needs for external financing that scared investors away earlier this year. Thailand is still suffering from the impact of political instability.

The bank, however, did not cut its outlook for every economy in the region. For instance, it expects the Philippines' growth to come in at 6.4 percent this year and 6.7 percent in 2015. The country's government has slightly higher targets.

"Strong domestic demand would continue to drive overall growth but will depend heavily on the ability of government to ramp up spending," the World Bank said in its recent report, titled "Enhancing Competitiveness in an Uncertain World."

Growth in the region could be negatively affected by weaker-than-expected global trade and an anticipated rise in interest rates in North America and Europe over the next couple of years.

Best poised to grow rapidly are countries like Malaysia, Vietnam and Cambodia, said the World Bank. All three could benefit from increases in export demand and, most importantly, from improvements in regional supply and value chains, the bank said.

Malaysia could grow 5.7 percent this year, an upgrade from the 4.9 percent forecast in April. Boosts in exports are behind the upgrade. Meanwhile, Cambodia is expected to grow 7.2 percent this year, thanks to increased garment exports.

The linchpin of all this growth will be domestic consumption, which the bank called "robust".

In Malaysia, for example, the labor market has grown stronger, boosting domestic spending.

In the Philippines, remittances from workers abroad are driving up spending. Higher consumer spending accounts for about half of economic growth in the 100-million-strong country. In the second quarter of this year, household consumption rose 5.3 percent year-on-year, faster than the average over the last decade and a half, said the World Bank.

Another bright spot among the member states of the Association of Southeast Asian Nations is Myanmar, whose economy is projected to grow 8.5 percent this year and the next. Recent and ongoing institutional and policy reforms and re-engagement with the international economy will drive growth in the emerging economy.