Southeast Asia, China and India: Fostering Growth through Digitalization

The 2018 edition of the Economic Outlook for Southeast Asia, China, and India published by OECD covers topics on Emerging Asia such as the regional economic outlook to 2022, recent developments in regional integration, the impacts of digitalization on manufacturing and services in the region, and country notes on key structural policy challenges.

The Economic Outlook for Southeast Asia, China, and India published by OECD is a biannual publication on Asia's regional economic growth, development and regional integration processes.

As per the published outlook for 2022, Southeast Asia is poised to maintain its growth momentum, averaging 5.2% per year from 2018 to 2022 on robust domestic private spending and the implementation of planned infrastructure initiatives. Cambodia, Lao PDR, and Myanmar are projected to grow the fastest of the ten member countries in the next five years through 2022, while the Philippines and Viet Nam are expected to lead growth among the ASEAN-5 (Indonesia, Malaysia, Philippines, Thailand and Viet Nam).

The external positions of Emerging Asian economies have remained generally robust, although the direction of recent current account trends varies and foreign direct investment (FDI) net inflows have weakened in some countries. Central banks' accommodative monetary stances persist, anchored on benign inflation, notwithstanding the recent manifestations of renewed price pressures. In turn, the stances of monetary authorities, coupled with low-risk perceptions, support the palpable optimism in capital markets.

Meanwhile, increased infrastructure spending looks set to contribute to continued expansionary fiscal policies in the near term. The widening of the fiscal gap may be a concern in certain economies, but generally overall positions are stable. The most prominent overarching risks to growth at this point are the possibility of a more rapid monetary policy contraction in advanced economies; the rapid rise in private-sector debt; and the broadening of trade restrictions globally, coupled with limited progress in regional trade agreements.

The expansion of the digital economy – the convergence of fixed, mobile and broadcast networks, the increasing connectivity of devices and objects, and the changes in social interactions and personal relationships that these developments bring about – is reshaping the manufacturing and services sectors in Emerging Asia. This process of digitalization has brought about rapid change and presents further opportunities and challenges for the region.

In Emerging Asia, the increased use of ICT in manufacturing and services is affecting business activities, trade, and productivity. It has led to the expansion of existing industries and the emergence of new ones in the region, such as electronics manufacturing, software development and ICT in Viet Nam; business and knowledge process outsourcing in the Philippines; and mobile payments in China. ICT services embodied in manufacturing and services account for a considerable share of the value of exports from some of the region. Interestingly, it is primarily domestic digital added value that is being embodied in services exports. There is also evidence that improvements in aggregate and firm-level productivity are associated with the use of new technologies in many countries.

Despite the progress made, access to the digital economy is uneven across and within Emerging Asian countries. For example, rates of Internet use, a prerequisite for participation in most aspects of the digital economy, varies between 81% of the population in Singapore and 22% in Lao PDR. Policy makers in the region seeking to foster the continued responsible development of digitalization should consider addressing the issue of trade restrictions, particularly those affecting trade in services; barriers to investment in the digital economy; the development and reform of physical and regulatory infrastructure; and ways of addressing labor market and social challenges. As digitalization is influenced by a range of factors, policy strategies will need to be adapted to local needs. Continued regional co-operation is also needed in addressing shared and cross-border challenges in the digital economy.

The publication points towards the necessity of domestic structural reform to improve prospects for inclusive and sustainable growth in Emerging Asia. Policy areas covered include skills and education, FDI, infrastructure and connectivity, green finance, trade, state-owned enterprises, land use, and innovation. The contexts of these policy challenges are discussed in the study, in order to appropriately frame recommendations for achieving national development goals.