Why Singapore will still lag behind ASEAN-5

Newly industrialized economies continue underpeformance.

"With the U.S. economy gaining some steam but still growing below potential, Europe in recession, and China growing near trend, the global outlook for both growth and trade remains subdued. We would thus expect the less open ASEAN-5 economies to continue to outperform the newly industrialized economies in the near term," said Paul Gruenwald, Standard & Poor's Asia-Pacific chief economist in a newly published S&P report.

The outlook came as Standard & Poor's provided a positive outlook for emerging Asia's economic fundamentals, which it said remains strong but that growth remains reliant on demand from the advanced economies.

The report, titled "Emerging Asia Will Grow But Won't Be Firing On All Cylinders," said the extent of reliance explains much of the variation in growth we now see across the region. China and the ASEAN-5 (Indonesia, Malaysia, Philippines, Thailand, and Vietnam) are more domestically driven, and therefore continue to enjoy relatively high and stable growth rates.

"Emerging Asia's strong domestic fundamentals but weak external demand makes for a decent, but sub-par year in 2013," said Mr. Gruenwald. "We liken the situation to flying an airplane without all the engines working."

Signs of a turnaround in the region are already evident as activity indicators such as the purchasing manager's indices have started to rise again, and export growth has rebounded. The issue is whether this momentum will continue.

Standard & Poor's forecasts emerging Asia's growth at 6.5% this year, rising to 6.8% in 2014 as the recovery in the U.S. gains momentum and Europe begins to emerge from its recession. China will lead the region with 8.0% growth this year and 7.9% in 2014.

"The reason for our relatively sanguine view is that Chinese growth continues to be investment led. And, at the risk of being overly simplistic, the model is based on state banks lending to state-controlled enterprises implementing the state's five-year plan," Mr. Gruenwald said.

India, on the other hand, continues to struggle, grappling with low growth and relatively high inflation. Economic data in early 2013 have not been encouraging. We forecast India's GDP to grow 6% this year.

"The rest of emerging Asia shows a clear divide in growth performance and prospects," Mr. Gruenwald said. The ASEAN-5 economies continue to outperform the newly industrialized economies of Hong Kong, Korea, Singapore, and Taiwan, which are more exposed to global developments. Over the past five years, the newly industrialized economies have tended to outperform in strong global growth years and underperform in weak ones.