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14 Jan 2005

International Economy

ASEAN Economy, 2005: Overcoming Protectionism, Reviving Tourism


The Tsunami natural disaster has devastated the morale of the people in the affected areas, both in Thailand and neighboring Asian countries. It will also drastically impact the economies of these countries in early 2005. However, many countries - including Thailand - are expected to be able to pool their efforts to renovate the widespread tsunami-ravaged areas and prime tourist attractions with a massive concerted effort.

Kasikorn Research Center (KRC) has forecast the economic outlook for ASEAN countries in 2005 which must bear the brunt of the Tsunami crisis over the first half of 2005, particularly Thailand and Indonesia where they were hit by the tidal waves. Even so, the Tsunami disaster is unlikely to have wide-ranging effect on the ASEAN economy as a whole. Both Thailand and Indonesia have yet to revise their economic projections for 2005 downward, while other ASEAN countries unaffected by the natural disaster will likely help sustain economic growth for the ASEAN bloc this year. As far as estimates go, the ASEAN economy is set to grow around 5.5 percent in 2005, against the average of 6.5 percent, last year.

Supportive factors for the ASEAN economy in 2005 will include:

1. Robust exports: Exports of ASEAN countries in 2005 should grow steadily, albeit at a decelerating pace from the year before, thanks to high demand from countries within the ASEAN group. Thus, ASEAN exports are likely to exhibit healthy growth. The expected robust growth in ASEAN exports can be attributed to: 1) FTA arrangements between ASEAN members and other negotiating countries; and, 2) trade privileges granted by the US and European Union (EU) to Vietnam, one of the ASEAN member states.

2. Bright prospects for foreign direct investment: In the midst of ASEAN economic growth and continuing improvement in investment atmosphere after 1997 economic crisis, foreign direct investment in ASEAN has risen steadily over the past three years.

3. Investment in mega-projects of the state sector - Investments in mega-projects of the state sectors of ASEAN countries will help to support the economies of ASEAN in 2005, as well as improve income and domestic employment. They will also be a driving force for the economies of ASEAN countries in the future.

However, risk factors that will tend to affect ASEAN economic growth in 2005 are as follows:
  • An economic slowdown in the US, China and Japan, which are important trade partners of ASEAN.
  • Trade barriers of developed countries, especially the US and the EU will tend to use trade impediments steadily, impeding ASEAN exports.
  • The end of garment quotas of WTO and the MFA (Multi-Fibre Agreement) in January 1, 2005, causing ASEAN to face tougher competition with countries that have lower labor costs like China, India, Pakistan and Bangladesh.
  • Tourism Glitches: The Tsunami tidal waves will cause Indonesia, Thailand, Malaysia and Burma serious impacts from this natural disaster, particularly Indonesia and Thailand that were severely damaged. ASEAN will also have to face challenges from rival tourism destinations within the Asian region, particularly Hong Kong that has various factors to attract tourists.
  • Unrest from political, social and natural disaster risks in Asian countries such as damage from the tsunami tidal waves, unrest in the South of Thailand the Muifa monsoons in Philippines, trans-national terrorism in Indonesia and political unrest in Burma…all of above having affected the stability and economic growth of ASEAN countries.

International Economy