Malaysia

Malaysia is the South-east Asia’s third largest economy which falls in the upper-middle income group, and is one of 13 countries identified by the Commission on Growth and Development that has recorded an annual average growth of more than 7pc for 25 years or more.

Malaysia has also succeeded in nearly curbing poverty. The share of households living below the national poverty line ($8.50 per-day in 2012) fell from over 50pc in the 1960s to less than 1pc currently. Despite this improvement pockets of poverty still remain. Income inequality remains high relative to other developed countries

It is now one of the most open economies in the world, with a trade to GDP ratio of 148pc from 2010 to 2014 compared to 58pc in developing countries of East Asia and Pacific.

The country’s main manufactured exports are of electronics, accounting for 40pc of total export earnings. About 40pc of jobs in Malaysia are linked with export activities. The implementation of new regional trade agreements can help Malaysia carry out key economic reforms and accelerate the country’s transition to high-income status.

Although Malaysia’s economy would appear to be one of the least impacted by the UK’s Brexit vote, its high trade exposure to Europe, and status as a financial hub, make it more susceptible to Brexit headwinds than some other ASEAN countries.

The economy is still growing although at a slower pace compared to previous years. Last year GDP grew by 5pc and may continue to grow by over 4pc this year, and 2017, if the country does not face unexpected and prolonged decline in export demand.

Bank Negara expects the economy to expand in 2016 by 4.2pc. Though Malaysia’s economic fundamentals are still strong as reflected in GDP growth and inflow of foreign direct investments, 2016 is expected to see economic uncertainties.

The first-quarter results for some economic indicators, particularly on external trade, are not very promising. The economy grew at a slower pace of 4.2pc in the first-quarter of 2016, due to slower growth in the manufacturing and services sectors, but overall growth was still above economists’ forecast of a subdued 4pc. The growth slid to 4pc again in the second quarter, moving at its slowest pace in nearly seven years. The first-half of 2016 has brought mixed results.

The economy is expected to give an improved performance in the second-half, especially as remedial measures introduced by the government gain momentum. Solid domestic demand will be the driving force behind 2016 and 2017 growth, but external factors present downside risks to growth. Economists remain cautious on the economy’s outlook in the second half of the year.

South Korea

South Korea’s economy — the fourth largest in Asia — has demonstrated incredible growth and global integration, becoming a high-tech industrialised economy over the past four decades.

In 2004, it joined the trillion-dollar club and became the 11th largest in the world economy. The export focused economy was again hit hard by the 2008 global economic downturn, but quickly rebounded in subsequent years, achieving 6.3pc growth in 2010.

Throughout 2012 and 2013 the economy experienced sluggish growth. The government addressed the causes of low productivity through its Three-Year Plan for Economic Innovation launched in 2014. The economy expanded 3.3pc, faster than the 3pc posted in 2013 but the growth slowed to 2.6pc in 2015.

GDP growth will likely slow to 2.4pc in the second-half of 2016 following an estimated 3pc in the first-half. As sluggish external demand continued to weigh on exports, the economy is expected to attain 2.6pc growth this year, the same as recorded in 2015.

The government plans to launch fiscal stimulus valued at more than $17bn that includes extra budget spending to support the lacklustre economy. The stimulus focuses on creating more jobs and reducing the negative effects of continued corporate restructuring in ailing industries such as shipping and shipbuilding.

The Central Bank expects GDP to increase 2.7pc in 2016 and 2.9pc in 2017. A carefully targeted expansion of social expenditure over the medium term could help reduce poverty and inequality and aid rebalancing by bolstering consumption and raising productivity. Government spending is set to rise less than 1pc in 2016. As the government spends more to generate jobs and tackle low birth-rate and rapid aging, it needs to introduce a supplementary budget to provide some stimulus. Korea’s budget for 2017 is set to exceed $362bn.

According to the BoK, exports remain on a contractionary trend mainly in the form export competition. The long term challenges include a rapidly aging population, inflexible labor market, dominance of large conglomerates (chaebols), and heavy reliance on exports, which comprise about half of GDP. Exchange rates with competing currencies in nearby countries are important to Korea’s export outlook. The challenges that lie ahead in corporate debt restructuring in a low-trade environment are formidable.

China and Japan are two of South Korea’s closest trading partners and are also major competitors in global markets. Currency depreciation in these two countries could have a deflationary impact, placing domestic producers at a clear disadvantage to competitors in neighbouring countries.

Shipbuilding is a major component of the South Korean economy. Within this sector, Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding and Marine Engineering are the world’s largest firms. These three largest shipbuilders have reportedly slashed 5,000 jobs in the first-half of 2016 as part of ongoing restructuring of their companies. Both regular and non-regular workers have been forced to quit or accept retirement.

More layoffs are planned over the next few years, with the moves expected to affect related positions in the sector. The Big Three intend to eliminate 30pc of their combined workforce by 2018.

Published in Dawn, Business & Finance weekly, August 29th, 2016