What every Singaporean investor needs to know about Thailand, Indonesia and Philippines to 2020

The TIP of an iceberg?

According to DBS, Southeast Asia is fast becoming a third growth force in emerging Asia, next to China and India. In particular, the TIP economies – Thailand, Indonesia and the Philippines – are increasingly garnering investor attention. 

The three countries have a combined population of around 400mn, but a GDP of only USD 1.5trn.

Here's more from DBS:

We argue that optimism in the TIP economies is justified, as GDP growth is expected to be elevated relative to the past decade. By 2020, the size of the TIP economies is projected to reach USD2.4trn (in constant 2012 US dollars), implying a USD1trn odd increase in demand over just eight years.

Accordingly, the size of the middleclass (defined as the number of motor vehicle owners) is expected to soar to nearly 200mn by 2020, from 80mn in 2012.

In absolute terms, Indonesia remains the most important of the TIP economies and is expected to contribute the bulk of economic growth over the next eight years.

Demand is expected to increase by USD 600bn between now and 2020, an increase of 62%. Thailand and the Philippines provide additional demand amounting to USD 182bn (up by 50% compared to 2012) and USD 158bn (up by 63% compared to 2012) respectively.

Similarly, Indonesia is projected to add the largest number of middleclass members to its population (85mn), followed by Thailand (18mn) and the Philippines (15mn).

In terms of living standards (USD per capita GDP in 2012 prices), all three economies will experience significant improvements in the coming years, but Thailand should maintain a sizable lead over both Indonesia and the Philippines. Indonesia is projected to pull away from the Philippines over our forecast horizon.

Our estimates are based on differing stages of economic development, government growth strategies, demographics and potential economic constraints.

Thailand will rely heavily on public infrastructure spending and is positioning itself to take advantage of economic growth in the greater Mekong region. An aging demographic profile and a stretched banking sector present the key challenges.

In Indonesia, commodity prices are unlikely to boost GDP in the coming 2-3 years as much they have in the past 2-3. This has negative implications for the budget, external accounts and banking system liquidity.

The next few years will be critical as Indonesia reaps the full benefits from its demographic dividends and attempts to transition the economy from commodities to secondary industries.

For the Philippines, it is easy to remember the many false dawns over the last few decades. But the current turnaround holds much promise even as the country needs to attract real investment instead of just portfolio flows. Generating jobs and utilizing human capital effectively will remain the key challenge.

On the plus side, risks on the fiscal and external front appear low.