• The FTCR Asean Economic Sentiment Index rose to 67 in the third quarter, up from 66.8 in the second, supported by further improvements in sentiment in the Philippines and a pick-up in Thailand.
  • Our Political Sentiment Index was unchanged at 62 points in the third quarter, though Thai sentiment improved sharply on rising hopes of a return to civilian government.
  • Malaysians were again the least confident in the region, with the 1MDB scandal dragging on economic and political confidence.

Our quarterly proprietary survey of the attitudes of Asean consumers towards their economies improved slightly in the third quarter of 2016, building on gains seen in the previous quarter. The FTCR Asean Economic Sentiment Index rose to 67 in the third quarter, up from 66.8 in the second, with a majority of Asean consumers saying their country’s economic situation would improve in the next six months. Our Political Sentiment Index for the region remained unchanged during the same period at 62 points. Despite the increase in the headline economic sentiment index, improvements were not shared equally across the region.

Both indices were based on survey responses from 5,000 consumers across Indonesia, Malaysia, the Philippines, Thailand and Vietnam in early September 2016.

Indonesia

The Economic Sentiment Index for Indonesia fell 2.2 points quarter-on-quarter to 73 while the Political Sentiment Index fell 1 point to 63.1. We attribute the deterioration in sentiment to $10bn of government spending cuts initiated in August.

President Joko Widodo has tried to plug his administration’s fiscal hole with a nine-month tax amnesty, which had been expected to bring $12.5bn into government coffers. Three months in, however, the take has been underwhelming, with only 19 per cent of the expected income received. This is delaying public infrastructure projects throughout Indonesia and risks capping the country’s economic growth this year. Economists expect Indonesia to grow just above 5 per cent this year after expanding 4.8 per cent in 2015.

Malaysia

Malaysians were again the most pessimistic in our quarterly survey, with results indicating they expect the economic and political climates to worsen in the next six months. The FTCR Economic Sentiment Index for Malaysia slumped 6.1 points quarter-on-quarter to 29.6, while the country’s Political Sentiment Index fell 1.8 points to 29.1.

This worsening in sentiment is linked to the 1MDB corruption scandal, we believe. A coalition of anti-government groups plan to hold a protest in downtown Kuala Lumpur on November 19 to demand action over the scandal and to protest against a proposed redistricting exercise ahead of the next general election. The election must be held by August 2018 but we believe Prime Minister Najib Razak will seek a new mandate in 2017.

Former Prime Minister Mahathir Mohamad and imprisoned de facto opposition leader Anwar Ibrahim have joined hands to try defeat Mr Najib’s coalition in the next election. We expect Mr Najib’s Barisan Nasional to win the contest but believe the Mahathir-Anwar alliance could spell trouble for the ruling party as a once-fractured opposition begins to coalesce around a common cause.

However, we think economic sentiment could perk up in the coming quarters. The government will table the national budget on October 21. With an election on the way, we think Mr Najib will increase social spending. But the government may not have much leeway: its revenues in the first half of the year fell 9.8 per cent year-on-year, while expenditure rose 5.4 per cent, and Mr Najib wants to balance the budget by 2020.

Philippines

The Philippine Economic Sentiment Index jumped 5.4 points in the third quarter to 72.3, while the Political Sentiment Index rose 1.9 points to 71.3. This is the fourth straight quarter of rising sentiment, making Filipinos the most optimistic citizens in our survey. The economy is performing well this year and we expect it to grow faster than last year’s pace of 5.9 per cent.

This is good news for maverick President Rodrigo Duterte, who is overseeing an aggressive war on drugs. Although his controversial and bloody campaign has prompted international criticism, our survey found that sentiment among urban Filipinos is even higher than it was before Mr Duterte took office at the end of May.

We expect his honeymoon period to last at least another six months, giving him room to push ahead with his 10-point economic plan, which includes tax reforms and lowering Philippine birth rates.

Thailand

Thai confidence in the economy rose for the first quarter in three, while political sentiment increased sharply. Our Economic Sentiment Index for Thailand rose 5.4 points to 56.5 while the Political Sentiment Index rose 8 points on the previous quarter to 64.6, its highest level since the second quarter of 2015.

We attribute these improvements to the recently passed, junta-drafted constitution. It was approved in August, bolstering hopes that the military government will return power to civilian hands in 2017 through a general election. We believe the Thaksin Sinawatra-backed Pheu Thai party will win the contest.

Vietnam

Our Vietnamese Economic Sentiment Index fell by 1 point in the third quarter to 64.5 while our Political Sentiment Index dropped to 58 points from 62.4 in the previous quarter.

The Vietnamese economy is showing signs of slowing. For the first eight months, production grew 6.9 per cent year-on-year compared with 8.9 per cent in the same period last year. We expect Vietnam’s gross domestic product to grow more slowly than last year’s 6.7 per cent. The country has been lashed by strong typhoons this year, causing widespread flooding and economic damage.

We attribute the drop in our measure of political sentiment to recently-concluded joint China-Russia military exercises in the South China Sea. Vietnam, with other Asean countries, has overlapping claims with China regarding the Paracel and Spratly Islands. In 2014, anti-China riots erupted across the country in response to Chinese activities in the contested waters, disrupting production.


FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and Southeast Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.



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