The slump in pound sterling after the Brexit vote to leave the European Union will mean the economy of the ASEAN group of 10 Southeast Asian countries will likely surpass the UK this year, something unthinkable not that long ago.
Rajiv Biswas, chief economist on the Asia-Pacific region for IHS Global Insight, said in a note on Monday that the Association of Southeast Asian Nations, which includes countries like Indonesia, Vietnam and Thailand, is forecast to grow 4.6% this year, or one of the fastest rates in the global economy.
The combined GDP of the 10 member countries is projected to rise to US$2.6 trillion in 2017 from US$2.5 trillion in 2016. That will be bigger than the respective economies of the UK, France and India – and twice the size of Australia.
The UK economy is forecast to shrink to US$2.4 trillion this year from US$2.6 trillion in 2016, Biswas said. He notes that without the fall of the pound, which plunged to its lowest against the dollar since 1985 after Britain voted in June to leave the European Union, the UK would still have been the bigger economy.
“Prior to Brexit, Asean’s sustained rapid growth was expected to result in the total size of Asean GDP eventually exceeding UK GDP by around 2022,” Biswas said in an email.
“However the slump of the UK pound after the Brexit vote has dramatically brought forward the tipping point at which Asean GDP exceeds UK GDP to 2017, due to exchange rate effects when comparing the GDP of different countries in USD terms.”
In an interview on Monday, Prime Minister Theresa May said that the country is facing a “hard Brexit,” pushing the pound down further.
Economists polled by the Financial Times gave a gloomy outlook for UK prospects in 2017 – predicting slower growth, a squeeze on household incomes, and delayed investment because of uncertainty about Brexit.
“In terms of economic growth per head, Britain’s performance has been in line with France, a country now synonymous in the UK with economic failure,” Simon Tilford, deputy director of the Centre for European Reform in London, said last year.
Asean, on the other hand, is expected to keep pushing ahead. Indeed, by 2027 the ten Southeast Asian economies will surpass Japan’s economy, Biswas said.
The Asean economy is being helped by strong demand in the US, growing tourism from China and Beijing’s ‘One Belt, One Road’ initiative, as well as increased private consumption.
“Global multinationals and investors seeking market opportunities in Asia often overlook the ASEAN region and concentrate on the biggest Asian economies, notably China and Japan,” Biswas said.
“With a total population of 600 million persons and rapidly growing household incomes in some of the most populous ASEAN countries such as Indonesia, Philippines and Vietnam, the ASEAN market is expected to grow rapidly over the next decade.”
He added that the region has been helped by significant progress in the Asean Free Trade deal, while liberalisation of trade in services continues.