Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
Speaker: Make sure you're subscribed to stay up to date with new episodes.
Speaker: Thanks for listening.
Speaker: And now onto today's show.
Speaker: This is a podcast from HSBC Global Research, available on Apple Podcasts and Spotify.
Speaker: However you're listening, analyst notifications, disclosures and disclaimers must be viewed on the link attached to your media player.
Speaker: Hello from Hong Kong and welcome to Under the Banyan Tree.
Speaker: I'm your host Fred Newman, Chief Asia Economist at HSBC.
Speaker: My regular co-host Harold is on the road right now, but I'm delighted to welcome my fellow economist Iris Decanet who joins me to kick off a three-part special series on ASEAN.
Speaker: We're gonna zero in on the Philippines and Thailand in today's episode.
Speaker: From demographics to digitization to durian, we've got a great conversation for you coming up right here under the Banyan Tree.
Speaker: Well, thanks for joining us, Aris, on the podcast.
Speaker: You're obviously the economist covering both the Philippines and Thailand.
Speaker: And we've really looked at ASEAN as a region where we see accelerating growth this year, despite some of these global headwinds.
Speaker: And some of the well-known stories in Southeast Asia are supply chain diversification, production moving from China to places like Malaysia and Vietnam, for example.
Speaker: But the Philippines is not really capturing much of that supply chain diversification.
Speaker: And yet it's one of the fastest growing economies in the region.
Speaker: Can you explain to us what's really driving Philippines growth?
Speaker: To answer that question, I want to start with a very short story of how I spent my Christmas in the Philippines.
Speaker: So we had a dinner feast basically.
Speaker: And there's something strange or something different with our dinner feast this year compared to what was pre-pandemic.
Speaker: Our sour bread was someone—we bought it from someone who quit his corporate job and began selling bread in Instagram because he learned that skill while during the pandemic.
Speaker: Our scented candle was someone who also let go of his corporate job and learned how to make candles during the pandemic and started selling them afterwards.
Speaker: Even I, for one, before going to Hong Kong, I was selling bottled cocktails in social media.
Speaker: And that explains how the Philippine consumption story is just so robust.
Speaker: The demographic trend in the Philippines is a very positive story.
Speaker: But if you look at the employment numbers, the employment figures are above what the demographic trend would suggest by 2.5 million people in 2023.
Speaker: So just imagine there were 2.5 million people working now.
Speaker: In usual cases, they're not supposed to be there.
Speaker: And by 2.5% additional labor, that is a big boost on growth.
Speaker: They are, again, taking advantage of digitalization to make ends meet, to earn extra income, and to smoothen consumption amidst this very struggling world economy.
Speaker: So you mentioned really two factors which are interesting here.
Speaker: One is demographics.
Speaker: The other one, you hint really at the human capital that the Philippines have.
Speaker: And I want to explore that a little bit.
Speaker: Let's start with demographics.
Speaker: Can you paint us a picture of, you know, how
Speaker: How large is the population of Philippines?
Speaker: Because we need to check every year because it's growing so fast.
Speaker: Where are we at right now?
Speaker: And how would you describe the Philippine demographics and why is it positive for economic growth?
Speaker: We're around 150 million strong Filipinos.
Speaker: We're highly educated, highly literate, and we're, I think, the second best English-speaking economy in Asia.
Speaker: And that alone attracts a lot of investment that pertains into services.
Speaker: We have the BPO sector still strong, still attracting some investment.
Speaker: BPO meaning the business process outsourcing.
Speaker: It's able to attract not just your call center agents, but also your medical services, your financial services.
Speaker: This is an opportunity for the Philippines given the fact that amidst digitalization, services can become more tradable.
Speaker: And the Philippines has a very good position to take advantage of this trend of exporting to the rest of the world through services.
Speaker: So, in favor of demographics, we have enormous human capital, also language abilities.
Speaker: Which are helping the Philippines on the remittances side, of course.
Speaker: I think one-third of global seafarers at one point were Filipinos as well.
Speaker: But then, of course, you have the more digital side that you mentioned that opens up domestically the opportunity to create new businesses, but also the export of services.
Speaker: But let me challenge you a little bit on that, because one of the key revolutions of late has been artificial intelligence.
Speaker: And there's been some worries that that could actually then mean that some jobs get lost if machines can essentially replace, say, somebody in a call center.
Speaker: How real do you think that risk is?
Speaker: And is that an opportunity perhaps for a country like the Philippines?
Speaker: Or is this something that you were worried about if you look at the next few years?
Speaker: Look, AI is like a chef knife.
Speaker: It can make the chef the most productive, most efficient chef in the kitchen, but it can also hurt you.
Speaker: And for the Philippines in particular, it's caught in the middle.
Speaker: It is providing, let's say, jobs that can easily be replaced using AI, but these jobs can also be more efficient with the use of AI.
Speaker: So it's a very big government agenda in the Philippines right now to retool, to rejig the Philippine workforce to make sure that these jobs aren't replaced, but AI is integrated where productivity in the Philippines will just enhance throughout the years ahead.
Speaker: Hopefully, it's able to bring up structural growth rather than bring it down.
Speaker: So that's interesting.
Speaker: So there's obviously productivity enhancements that maybe the Philippines can take advantage of as well and accelerate this process.
Speaker: And I think particularly in a world where we've labor shortages and developed markets, obviously the Philippines fills a niche, right, with a young population, growing population.
Speaker: And so that's maybe one of the reasons why we have the Philippines growing so strongly, despite not capturing some of the supply chain verification.
Speaker: But before finishing off on the Philippines and moving to Thailand, one quick question.
Speaker: The Filipinos famously are really into music.
Speaker: When you go to the Philippines, you hear fantastic cover bands everywhere.
Speaker: When are we going to see, you know, the world class Filipino boy or girl band emerge just where the Koreans have captured global markets?
Speaker: Isn't it time for the Philippines to produce a world act like that?
Speaker: It is.
Speaker: I think we do have the talent to be able to provide entertainment to the rest of the world.
Speaker: And I would actually point out that Filipino hip-hop is making a mark in the global music industry.
Speaker: So that's something that we need to watch out for.
Speaker: Eminem, the big rapper Eminem, is already working with a Filipino hip-hop artist.
Speaker: So let's see.
Speaker: Let's see where it goes.
Speaker: So there you have it, ladies and gentlemen.
Speaker: The Filipino hip hop is the next big thing.
Speaker: We're going to take a quick break here.
Speaker: When we come back, we're going to talk about Thailand and why durian exports from Thailand are really the next big thing for that economy.
Speaker: Well, Aris, we talked about the Philippines.
Speaker: Let's focus on Thailand, the other economy that you're covering.
Speaker: And here, too, it's not an economy that's really in the category maybe of capturing, say, the diversification of electronic supply chains that we see in Vietnam, for example.
Speaker: But clearly, Thailand's growth is also expected to accelerate this year.
Speaker: I imagine tourism is playing a big role here.
Speaker: But what else is there that drives the economy outside a very well-known tourism story?
Speaker: I guess I just have to temper that statement and say that a lot of people right now expect that the potential growth rate in Thailand would actually decrease from before.
Speaker: Potential growth rate back then was around 3.5%.
Speaker: A lot of the multinationals expecting potential growth to be at 2.7% because there are a lot of structural headwinds in Thailand.
Speaker: You have an aging population.
Speaker: You have high household debt.
Speaker: You have export competitiveness potentially deteriorating as the world transitions to EV, to higher tech.
Speaker: So there are a lot of challenges right now.
Speaker: And so far, we expect growth to accelerate not so much because of its structural drivers, but more of the fiscal stimulus that may arrive in 2024.
Speaker: But then again, there are legal risks to the fiscal stimulus that they're planning to do.
Speaker: So we have yet to see the details of whether it will happen or not.
Speaker: I wanted to focus on some of the big, big trends.
Speaker: In Thailand, the demographics are not quite as favorable.
Speaker: Yes.
Speaker: The median age, just as a point of comparison, the median age in the Philippines is 25.
Speaker: The median age in Thailand is between 41 to 43.
Speaker: So in a span of, let's say, 15 years, it is largely expected that Thailand becomes a super-aged society, if that makes sense.
Speaker: And that, of course, would introduce new problems, new fiscal problems, because, of course, if you have more hands consuming rather than working, you need to have savings today to be able to smoothen consumption in the future.
Speaker: So yes, it is quite worrying.
Speaker: But Thailand is taking big steps to make sure that that doesn't really happen.
Speaker: You're looking at increasing VAT from 7% to 10%.
Speaker: You're looking at the BOT trying to bring household debt down.
Speaker: So it is.
Speaker: They're preparing for what's ahead.
Speaker: That's interesting.
Speaker: So Thailand, one of the faster aging economies in Asia, in fact, following Northeast Asia, where we see rapid aging as well.
Speaker: You mentioned EVs, and I wanted to ask you about that, because Thailand has actually been sort of deemed the Detroit of the East, because it's been a major car manufacturer exporter.
Speaker: At one point, one third of Thailand's exports were automotive related.
Speaker: Now, we are facing a revolution in the car industry.
Speaker: We're moving to EV vehicles, new energy vehicles, China famously accelerating its exports.
Speaker: Where does this leave Thailand?
Speaker: Because their entire industrial infrastructure is geared towards combustion engines.
Speaker: And is Thailand going to be able to make that jump towards an EV-led automotive sector, or is there a risk here of them falling behind?
Speaker: It is indeed a fundamental challenge for Thailand, something that authorities are very much well aware of.
Speaker: And for that reason, authorities pulled out this very big investment promotion campaign called EV 3.5, where you provide consumer incentives for corporations who sell to the Thailand market.
Speaker: under the condition that in 2026-2027, they're supposed to be producing the cars that they sell in Thailand itself.
Speaker: And because of this move, you've seen a big jump in FDI in Thailand beginning in 2016, largely sourced from mainland China.
Speaker: Now, we talked about electric vehicles and the challenges of the transition.
Speaker: We talked about the demographics and both of them, some challenges, adjustment challenges for Thailand.
Speaker: Let's talk about something more positive, and that is agricultural exports.
Speaker: And you've written about one particular export that has been doing particularly well of late.
Speaker: What is that, Norris?
Speaker: So it is Southeast Asia's king of fruits, durian.
Speaker: So durian market, how much is it growing?
Speaker: It's growing by 400% year on year.
Speaker: And before we start, keep talking about durian.
Speaker: For those who don't know durian, it is a very pungent fruit and to the extent that actually in many hotel rooms in Asia,
Speaker: You see signs in your hotel which says no smoking and then next to it is a no durian sign as well because it leaves that smell.
Speaker: And yet we see that boom because it's the king of fruit and they're shipping it from Thailand to which countries?
Speaker: Thailand is exporting it to China.
Speaker: Vietnam has also started selling durian to China.
Speaker: The Philippines exported its first durian to China in April.
Speaker: So there's this big boom in China right now where if you're engaged or if you're courting your partner, the boy would have to give a durian to its prospective mother-in-law.
Speaker: And because of this new tradition, it increased this boom in
Speaker: in mainland China today.
Speaker: And even to where we are right now, if you could go to the supermarkets, there's always this one section that's just dedicated to durian.
Speaker: And with Thailand providing 90% of the market of durian, it was a big, big, big opportunity for Thailand to the point that durian boomed so much where it is now bigger than rice.
Speaker: Not a small feat knowing that Thailand is the second largest exporter of rice.
Speaker: So I have a suggestion for new analytic indicator for you.
Speaker: If you want to predict Thai GDP growth, look at Chinese wedding numbers over the course of the year.
Speaker: And that'd be a leading indicator, I suppose, during exports and GDP growth in Thailand.
Speaker: That's interesting.
Speaker: That's a reminder that the Thai economy still has enormous potential.
Speaker: It's actually an agricultural exporter in many ways as well.
Speaker: But lastly, we should talk a little bit about tourism because, of course, that is by many measures probably the largest contributor to jobs in Thailand.
Speaker: I would suspect.
Speaker: I don't have the exact numbers.
Speaker: Clearly worldwide known as a world-class tourist destination.
Speaker: What are you seeing there?
Speaker: Are we seeing the return of tourism after COVID?
Speaker: Is there a regular boom or would our listeners actually be able to travel to Thailand and find still free hotel rooms and so forth?
Speaker: So the tourism recovery story, it doesn't look as good as we want it to be.
Speaker: So just a point of comparison, there were 40 million tourists in 2019.
Speaker: In 2023, it was around 28 to 29 million.
Speaker: And for government forecasts, and even for our forecast, we predict tourism to be around 32 to 35 million in 2024.
Speaker: That is, of course, around 5 million before the 2019 number, before pre-pandemic levels.
Speaker: But
Speaker: It's good to point out that the recovery of non-mainland Chinese tourists are already at around between 90 to 100 percent, while mainland Chinese tourism or tourist arrivals is just at between 40 to 50 percent of pre-pandemic levels.
Speaker: So without its biggest source of tourists, China, just to provide some numbers, is usually one-third of Thailand's tourist numbers.
Speaker: And they are the largest per capita spenders amongst all the other nationalities that visit Thailand.
Speaker: So without this recovery, this full recovery of Chinese tourism, you can't really expect a strong recovery of the general tourism narrative in Thailand.
Speaker: So we have yet to see the Chinese tourists come back.
Speaker: well aris i thank you for this overview i'll be sure to keep pay attention to uh... philippine rap artist and tied durian from now on but it's very inspiring and it's uh... again that it is i think important to uh... shine the spotlight on small economies in asia that still do deliver that acceleration growth this year even as we see uh... some of the large economies actually continue to to to cool at the margin and so
Speaker: Certainly ASEAN, exciting region, and both the Philippines and Thailand, square in the middle of it.
Speaker: So thank you very much, Aris.
Speaker: Cheers.
Speaker: Well, folks, that's it for today.
Speaker: Thank you very much for joining us as always.
Speaker: And of course, if you'd like to subscribe, head to Apple or Spotify or wherever you find your podcasts and simply subscribe to our podcast on a weekly basis.
Speaker: We'll be back next week putting Asian markets and economics in context right here on the Banyan Tree.
Speaker: Talk to you then.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
Speaker: Make sure you're subscribed to stay up to date with new episodes.
