ASEAN Economic Issues (December 2024)Trade & Investment Unit, ASEAN-Korea Centre

1. Korea’s Trade to ASEAN Countries (as of November 2024)

Unit: 1 million (USD)

Country/Region	November 2024			November 2023	2023
	Export	Import	Total	Total	Total
Total (Korea)	56,321	50,735	107,056	107,775	1,274,977
ASEAN	9,819	6,475	16,294	15,950	187,179
Brunei Darussalam	6	53	60	127	466
Cambodia	57	32	89	86	1,052
Indonesia	654	1,033	1,687	1,708	21,287
Lao PDR	12	4	16	16	194
Malaysia	855	1,377	2,233	2,188	25,005
Myanmar	27	42	69	57	1,240
Philippines	843	294	1,137	1,166	13,654
Singapore	1,568	733	2,301	2,555	29,937
Thailand	643	587	1,231	1,125	14,916
Vietnam	5,152	2,319	7,471	7,469	79,428
China	11,267	11,446	22,712	23,442	267,662
Japan	2,482	3,993	6,475	6,283	76,676

Reference: Korea Customs Service

2. Korea’s Overseas Direct Investment to ASEAN (2024 Q3)

Country/Region	2023				2024
	Q1	Q2	Q3	Total	Q1	Q2	Q3	Total
Total (Korea)	16,893	15,649	14,623	47,165	16,431	15,931	14,186	46,548
ASEAN	1,267	2,316	1,499	5,082	1,632	2,206	1,721	5,559
Brunei Darussalam	0	0	0	0	0	0	0	0
Cambodia	131	48	50	229	59	7	208	274
Indonesia	278	856	502	1,637	267	519	168	954
Lao PDR	3	9	13	26	2	5	6	13
Malaysia	64	48	52	164	148	253	182	582
Myanmar	45	56	36	137	13	52	51	117
Philippines	25	22	35	82	35	31	23	79
Singapore	254	415	234	902	379	550	492	1,421
Thailand	45	76	67	188	30	27	76	133
Vietnam	459	889	593	1,940	709	761	516	1,986

Reference: Korea Eximbank

3. Press Release on AMRO’s 2024 Annual Consultation Report on Korea (Link)

Korea: Supporting Growth While Safeguarding Stability

Inflation has continued to trend down while the Korean economy has improved this year on the back of strong exports. In the near term, domestic demand is expected to pick up while export momentum moderates with the downswing in the tech cycle and weaker external demand, especially in light of expected heightening of the US protectionist trade policy. Meanwhile, interest burden and scarring effects of the pandemic continue to exert pressure on borrowers, and pockets of risk remain in savings banks, which are more exposed to project finance (PF) loans in the real estate sector. Given these considerations, macroeconomic policies should be recalibrated to support growth while maintaining financial system stability.

This is according to the preliminary assessment by the ASEAN+3 Macroeconomic Research Office (AMRO) after its Annual Consultation Visit to Korea from November 14-29, 2024. The AMRO team was led by Lead Economist Sumio Ishikawa, while AMRO Director Kouqing Li and Chief Economist Hoe Ee Khor participated in the policy meetings. The discussions focused on Korea’s recent economic developments and outlook, risks and vulnerabilities, and policy responses.

Economic developments and outlook

“The Korean economy is forecast to grow at 2.2 percent in 2024 before moderating to 1.9 percent in 2025, reflecting increased uncertainty in the global economic environment, especially regarding the US trade policy,” said Dr. Ishikawa. Such uncertainty calls for continued vigilance and recalibration of macroeconomic policy mix to support growth while safeguarding financial stability.”

Domestic demand is expected to pick up with the easing of monetary conditions and a recovery in manufacturing investment while export momentum moderates with the downturn in the semiconductor cycle, especially in light of potential increases in US tariffs. Inflationary pressure is expected to remain contained on the back of stable domestic food prices and moderation in global energy prices. Inflation is estimated at 2.3 percent this year and 1.8 percent next year.

Credit quality, particularly of loans to SMEs and self-employed business operators, continues to deteriorate, reflecting weak recovery from the pandemic downturn, although the financial system remains sound, with capital adequacy ratios of banks and non-bank financial institutions (NBFIs) well above regulatory standards and ample liquidity buffers among banks.

Risks and vulnerabilities

Further escalation of conflicts in the Middle East could push up energy prices and shipping costs. Meanwhile, extreme weather conditions can disrupt agricultural production and drive up food prices. Inflationary pressure remains subject to adjustments to fuel tax and electricity prices.

A sudden growth slowdown in the US, Europe, or China may dampen global demand and affect Korea’s exports. The country’s export prospects may also be eroded by significant increases in import tariffs by the incoming US administration.

The debt servicing ability of SMEs, small merchants, self-employed business operators, and low-income households remains weak. Although the banking sector’s credit quality has stabilized, non-bank deposit-taking institutions have been experiencing a rise in delinquency.

Policy recommendations

As inflation is expected to further moderate in the near term, a continued dial-back in the restrictiveness of monetary policy would be appropriate to support the recovery in domestic demand. Although the policy rate reduction may lead to an increase in household borrowing, it can help alleviate households’ debt burden for existing borrowers and spur domestic demand.

Continued efforts are needed to ensure fiscal sustainability. Given the narrowed fiscal space post-pandemic, a medium-term fiscal consolidation program would be prudent to rebuild fiscal space and stabilize the debt-to-GDP ratio. Over the longer term, it is essential to strengthen fiscal discipline and implement revenue-enhancing and spending-restructuring measures.

4. ASEAN as a Global AI Hub (e-Conomy SEA 2024 Report) (Link)

Profits on the rise, harnessing SEA’s advantage

According to the ‘e-Conomy SEA 2024 Report’ by Google, Temasek and Bain & Company, Southeast Asia attracted more than US$ 3 billion in investment in Artificial Intelligence (AI) infrastructure in the first half of 2024. As of January 2023, tech giants including Microsoft, Google and Amazon have also committed more than US$ 50 billion in AI investments in the region. The influx of investment reflects the growing recognition of Southeast Asia as a burgeoning hub for AI innovation – a shift that could boost the region’s economies. ASEAN has predicted that AI could boost the region’s GDP growth by 10% to 18%, potentially adding up to US$1 trillion by 2030. The ASEAN needs to take concrete steps to unlock the potential of AI and position itself as the next AI hub in the world since the region still faces a number of significant challenges.

National level

After recognizing the importance of AI, several Southeast Asian governments have fomulated national strategies, such as Indonesia’s National AI Strategy and Singapore’s NAIS 2.0 (National AI Strategy), to integrate AI into various sectors. Singapore has also invested $70 million to develop models that are culturally appropriate for the region. At the regional level, ASEAN has launched initiatives such as the ‘ASEAN Guidelines on AI Governance and Ethics’ and established the ASEAN Working Group on AI (WG-AI) to promote collaborative efforts and ethical use of AI across member states. Furthermore, the Digital Economy Framework Agreement (DEFA) is also expected to help promote cross-border data regulations in the region, potentially leading to more reliable and accurate AI systems.

Private sector

In addition to government initiatives, the private sector has been driving AI adoption. A report titled ‘e-Conomy SEA 2024’ compiled by Google, noted that 54% of AI projects progress from idea to production within 6 months and 71% deliver a Return on Investment (ROI) within 12 months. With incredibly short turnaround times, major tech companies in the region such as Gojek, Grab, and Lazada are leveraging AI in their businesses.

Regional level

‘AI Ready ASEAN’ is a regional initiative launched by the ASEAN Foundation, with the support of Google.org, to build AI literacy across the ASEAN region. With a $ 5 million grant, this 2.5-year program aims to equip 5.5 million individuals from all ten ASEAN Member States with essential AI skills. The ASEAN Foundation will also establish a regional AI resource hub, featuring localized content and AI education tailored to specific national contexts. Additionally, ‘AI Ready ASEAN’ will conduct research on AI literacy and ethics and drive awareness campaigns to promote AI’s responsible use in the region.

Challenges

While ASEAN has attracted strong investment in AI, the region still faces significant challenges. One of the main challenges is the lack of digital talent, with 61% of ASEAN youth aged 10-24 having not received formal digital training in school. There are also large differences in AI readiness among ASEAN countries, with only Singapore, Malaysia and Thailand scoring above the Asia-Pacific average.

Cases of investing in AI

ASEAN emerges as a global data center hot spot as AI usage rises. Nvidia CEO Jensen Huang and Prime Minister Pham Minh Chinh signed an agreement to establish an artificial intelligence (AI) research and development center in Hanoi, Viet Nam. Furthermore, Huang’s Southeast Asia visit kicked off with a meeting with Thailand Prime Minister Paetongtarn Shinawatra, where he discussed the opportunities for sovereign AI development in Thailand and promised to collaborate with Thai tech company SIAM.AI Cloud. Malaysia and Indonesia are also actively attracting AI-related investments and dreaming of becoming a regional AI industry hub. As tech companies are expanding investments to ASEAN countries amid the reorganization of global supply chain, ASEAN will be able to leap into a regional AI industry hub.

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ASEAN Economic Issues (December 2024)

1. 2024년 11월 수출입 동향

단위: 백만 불

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