How the Economist views the AEC


How the Economist views the AEC

In July this year the weekly business and current affairs magazine The Economist covered what it saw as the progress and future of the Asean Economic Community (AEC) from its proposed start date of 31 December this year and into 2016.

It started by giving a general overview of the AEC, noting ‘the AEC will endeavour to move the region toward a more globally-competitive single market and production base with free flows of goods, services, skilled labour, investments and capital across its 10 member states.’

The Economist set out a number of impressive metrics: it is the seventh-largest economy in the world, home to 625 million people, a population larger than the

European Union or North America and it has the third-largest labour force in the world, behind China and India. By 2050 it could easily be the world’s fourth-largest economy.

Since 1990, around 60 perecnt of total Asean growth been via productivity gains while its overall GDP growth in the decade prior to 2014 was 5.4 percent, outpacing countries like Brazil and Russia.

Projected growth forecasts for 2015 are 4.8 percent and, following the start of the AEC, jumping to 5.2 percent in 2016. If those figures are achieved, Asean will outperform other regional emerging market blocs such as Mercosur, Eastern Europe and the Middle East and North Africa region.

‘The AEC envisages a region of equitable economic development and full integration with the global economy,’ wrote The Economist. ‘AEC member states have targeted the following areas for deeper cooperation: macroeconomic and financial policy consultation; trade financing measures; enhanced private sector involvement for the building of the AEC; enhanced infrastructure and communications connectivity; integrated industries across the region to promote regional sourcing; human resources development; recognition of professional qualifications; and development of electronic transactions through the e-ASEAN initiative.’

The growth of the middle class across Southeast Asia has been rapid and ‘the number of consuming households is expected to nearly double by 2025 to 125 million.’

Foreign direct investment into the region surpassed that into China in both 2013 and 2014, with last year seeing the equivalent of US$136.2 billion total net inflows.

Part of the reason is geographic: ‘multinationals hoping to capitalize on its strategic location at the intersection of China, India and Japan…’ Wages are also lower than in China in eight of the 10 Asean countries, with only Singapore and Malaysia higher.

The Economist suggests the AEC should see ‘stronger cross-border supply chains, further reduced goods tariffs and the eventual liberalization of services sectors…’ All of this will continue to boost intra-regional trade.

Continued next issue: the challenges facing the AEC