ICAEW said in a statement the electronics sector is a bright spot for Southeast Asia’s economy, with the region projected to grow by 4% in 2024 and 2025.
“However, this is below the pre-pandemic average of 5% in the five years prior, largely due to expected challenges in domestic consumption as interest rates remain higher for longer,” it said.
The association said electronics-focussed exporters in Southeast Asia gained a better foothold in the first quarter of this year largely due to the bottoming out of the electronics sector.
“The recovery in global semiconductor sales, which saw a 15.3% year-on-year (y-o-y) increase in Q1 2024, has particularly benefitted Vietnam, where export growth soared to an estimated 16.8% y-o-y.”
On domestic consumption in the region, ICAEW said domestic consumption in Southeast Asia was more resilient than expected in Q1 2024.
It said it is unlikely to drive growth in the coming quarter as tight monetary policy in the region is expected to restrain consumer spending.
“The persistent weakness in local currencies against the US dollar will likely limit monetary easing options for Southeast Asian central banks.
“The strong US dollar, driven by the US Federal Reserve’s (Fed) high interest rates, prevents local central banks from cutting rates without risking further currency depreciation,” it said.
The association noted that in Q1 2024, Bank Indonesia was even forced to raise rates to arrest the rupiah’s decline.
“The ongoing tight monetary policy means that debt servicing and borrowing costs will remain high, likely constraining private consumption.
“Additionally, many consumers and businesses are continuing to consolidate as they are still recovering from the pandemic and are likely to focus on rebuilding savings or repairing their balance sheets in the short term,” it said.
On the ringgit, ICAEW said the local currency encountered significant challenges in Q1 2024, largely attributed to the substantial discount of Bank Negara Malaysia’s policy rate relative to the US Federal Funds rate.
It opined that despite inflation remaining relatively low, hovering below 2% for the past six months and showing little indication of a significant increase, the currency weakness poses an obstacle to BNM’s ability to ease policy to support the economy.
“This challenge persists until the Fed initiates rate cuts, anticipated to occur in the third quarter, alleviating pressure on the ringgit and potentially enabling policy rate adjustments,” it said.