Southeast Asia: forecast less certain

The Southeast Asian region’s recovery subservience to the evolution of the COVID-19 pandemic was the most prominent risk ANZ Research had flagged for 2020. Unfortunately, this outcome has materialised.

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ANZ Research is now marking down the 2021 gross domestic product (GDP) forecast for the ASEAN-6 economies to 3.9 per cent from 4.6 per cent previously. The 2022 growth forecast currently remains unchanged at 5.4 per cent.

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The downgrade extends to all ASEAN-6 economies except Singapore where - despite movement restrictions - growth indictors are still evolving along expected lines.

In the other regions, the latest wave of the pandemic and the associated intensification of restrictions have inflicted substantive damage to recovery.

The channels through which the recovery is being impacted are well known - diminished consumer confidence, excessive slack in the service industries such as recreation and tourism, and the waning efficacy of expansionary fiscal and monetary policies.

In addition to these pre-existing channels, two other headwinds have emerged: the pandemic is starting to seep through the manufacturing sector as evident from the recent sub-50 purchasing managers index readings in several economies. And slowing growth in China.

" The latest wave of the pandemic and the attendant intensification of restrictions have inflicted substantive damage to the recovery."

At an economy-specific level, Thailand remains the prime casualty of the current wave of the pandemic with strict movement restrictions now applicable to regions that cumulatively account for 80 per cent of national GDP.

At the same time, the response to the Phuket Sandbox and Samui Plus tourism locales has been lukewarm. It is becoming apparent the tourism industry, which directly and indirectly accounts for close to 20 per cent of the workforce, is unlikely to revive this year.

In Vietnam, the pandemic has struck key economic hubs and manufacturing operations are also being impacted. On the positive side, however, foreign direct investment flows underscoring Vietnam’s potential growth are holding up.

Meanwhile, in Indonesia, Malaysia and the Philippines, movement restrictions continue to be routinely re-imposed or extended.

Against this backdrop, the divergence in growth has widened. The ASEAN (ex-Singapore) economies are lagging not only the US but also their North Asian peers.

Based on ANZ Research’s revised forecasts, output gaps in ASEAN will now close later than 2022, as earlier anticipated.

This delay is likely to have a bearing on the normalisation of monetary policies.

Sanjay Mathur is Chief Economist for Southeast Asia and India at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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