The economic recovery though will be a bumpy and long drawn out affair, given the second and third waves of outbreaks experienced in some countries. In the Philippines and Indonesia for example, the situation is still far from contained. By ANZ Research’s estimates, ASEAN’s real gross domestic product (GDP) will only recover to pre-COVID-19 levels in late 2021 or early 2022 at the earliest.
So far, most governments have adopted a unilateral approach to combating the pandemic, due to the lack of global leadership amongst the major advanced economies.
The pandemic has resulted in unprecedented public borrowing among governments right around the world as they battle the health crisis and ensuing economic fall-out. But governments need to come up with a credible medium-term plan to repair the fiscal position at some point or risk losing support from credit rating agencies and investors.
The US Federal Reserve’s commitment to keep interest rates low for a long time provides ASEAN with much needed breathing space. However ultra-accommodative US monetary policy, and the Fed's increased tolerance for higher inflation in the US, has resulted in further pressure on the US dollar. In turn, this has resulted in the strengthening of currencies in ASEAN which has eroded the grouping’s export competitiveness.
In addition, long periods of low interest rates also risk inflating asset prices which could cause financial stability risks. How policymakers manage this in a world awash with liquidity is important.
Ongoing tensions between the United States and China have raised fears the era of globalisation is over. Increased nationalism is understandable but going it alone is self-defeating. A country cannot thrive if it is successful in containing the outbreak while its neighbours are not. There is a vested interest in ensuring that the pandemic is contained everywhere.
COVID-19 has brought about huge structural shifts. ASEAN has largely adopted unilateral measures to manage the pandemic and the economic fallout but better coordination and closer integration is crucial for the region to not only to recover but thrive.
In this regard, a successful conclusion to the Regional Comprehensive Economic Partnership (RCEP) by the end of the year will send a strong signal ASEAN remains committed to multilateralism while serving to kick-start recovery prospects in the region.
More than ever in a post-pandemic world, ASEAN remains poised to be greater than the sum of its parts.
Khoon Goh is Head of Asia Research at ANZ
This article was originally published by the Business Times.