1. SOUTH EAST ASIA: ECONOMIC OUTLOOK Presentation to 31 st ASEAN-Japan Business Meeting Manu Bhaskaran Centennial Group November 2005 5.1.1.2

2. KEY POINTS SE Asia is making a comeback  Political risks have been reduced  Indonesia is the key improvement  Structural rise in economic growth  Investment rates to rise  China and India  SE Asia is adjusting, not a loser - yet

3. POLITICAL RISKS: SE ASIA Religious extremism / terror: contained  Indonesia: stronger will to act  Bali bombs notwithstanding  Decisive measures in Malaysia  Singapore: a hard target  The exception: Southern Thailand Bottom line: one-off incidents, not more

4. Both cyclical and structural positives  Cyclical turn  OECD demand, tech demand  Structural factors  Coping with competitiveness challenges  Rising investment ratio ECONOMIC PROSPECTS

5. Cycle: Exposed to global economic risks  Global demand growth to recover  Lead indicators in OECD rising  Tech demand also up  Electronics demand vital to SE Asia  Rising rates, higher oil prices a risk ECONOMIC PROSPECTS (2)

6. CYCLICAL RISKS OECD lead indicators up: export demand

7. TECH DEMAND UP Demand for electronics rising again

8. External risks  Global imbalances threaten demand  US current account deficit  Housing bubbles  China – possible slowdown  Regional headwinds  Rising interest rates, inflation hurt WHAT CAN GO WRONG?

9. Resilience has improved  Economies more diversified  Domestic demand vs external  New niches of activity expanding  Domestic demand has healed  Consumer demand revived  New investment cycle  Better policy:  exchange rates flexible more anticipatory HOW RESILIENT IS SE ASIA?

10. SE Asia: coping with new competitors  Share of world exports still high  Share of FDI fell  But signs of turnaround  Adjusting  Policies changing  Companies restructuring ECONOMIC PROSPECTS (3)

11. SE ASIAN COMPETITIVENESS

12. COMPETITION FOR FDI Even China’s share of developing countries FDI fell

13. SE ASIA GIVES HIGH RETURNS

14. DIVISION OF LABOUR CHANGES

15. BUT NEW THREATS EMERGING Benign impact so far, could change  China expanding into components  Direct competition with ASEAN  Further shakeout likely, ASEAN SMEs hit?  But China cannot dominate everything  Indian manufacturing is rising  Strong edge: engineering, skill-related  Will pose more competition eg autos

16. FDI: WATCH INDIA AT Kearney Survey Ranking Rank 2004Rank 2003Rank 2002 China111 India3615 Hong Kong82218 Malaysia1523n.a. Singapore182822 Thailand201620 Indonesia2325n.a. South Korea211821 Taiwan252024

17. FORECASTS 200520062007 2006- 20102011-15 China9.27.27.0 6.8 Hong Kong5.54.04.24.03.5 India7.27.47.07.37.5 Indonesia4.95.47.66.07.0 Korea3.65.84.5 3.0 Malaysia4.86.36.56.26.0 Philippines4.65.54.54.05.0 Singapore5.06.45.55.84.0 Taiwan3.75.24.84.03.0 Thailand4.56.37.56.56.0

18. CONCLUSION  Political risks  SE Asia could do better relative to NE Asia  One-off shocks possible but  Resilience has returned  Economic prospects  Cyclical risks are rising  SE Asia finally reviving from 1997 crisis  Can cope with rising challenges from China and India