Southeast Asian economies are relatively outward oriented. It thus comes as no surprise that the performance of these economies is affected by the health of the global economy. For 2015, the global economy is expected to grow at a rate of 3.1 per cent. This is only slightly lower than the 3.4 per cent achieved in the previous year. Whilst not disastrous, the slower growth, especially in key markets such as China, is likely to dampen the demand for manufactured goods and primary commodities exported by countries in this region. There are other adverse external developments as well. These include the continuing decline in oil and commodity prices, as well as the sharp depreciation of national currencies against the U.S. dollar. Such unfavourable developments negatively affect some countries more than others, depending on the degree of economic openness, the nature of the trade structure and the strength of domestic demand.

This chapter aims to provide a broad survey of the global economy and its effects on the economic performance of Southeast Asian economies in 2015. The nature of the adverse global conditions is discussed in the next section. How such conditions affect the economies in the region is discussed in the third section. Some of the structural challenges affecting growth in the medium- and long-term are discussed in the fourth section. The fifth section concludes.

Adverse Global Economic Conditions

The global economy is dominated by a few large economies, including the United States, China, Japan and developed countries in the European Union such as Germany and the United Kingdom. These countries collectively account for about half of the world's GDP (Table 1). The slowdown of these major economies would adversely impact the growth of the global economy. In 2015 the global economy did grow at a slower pace of 3.1 per cent compared to 3.4 per cent in 2014 (Table 2). A key factor responsible for this slowdown has been the continuing decline in China's growth rate from 7.7 per cent in 2013 and 7.3 per cent in 2014 to 6.8 per cent in 2015. The slower pace of growth is driven by a number of structural factors and is expected to be the “new normal”. These factors include rising debt levels, lower capital formation rates and lower productivity growth. China has also experienced financial volatility in 2015.