Kuala Lumpur, Dec 11: Great News.
Despite various challenges brought on by various COVID-19 variants, economists predict only the best for South-East Asia (SEA) countries in the months ahead.
SEA countries is expected to be the fastest-growing region in the world next year thanks to the high immunisation coverage in countries such as Singapore and Malaysia with the growth rate expected to be around the 6.1 per cent mark.
The forecast was presented by Sian Fenner, Lead Asia Economist at Oxford Economics, at an Economic Insight Forum held by the Institute of Chartered Accountants in England and Wales (ICAEW) earlier this month.
At the forum, industry leaders and experts discussed SEA’s economic outlook, with a focus on regional trade agreements and their impact on supply chains and business relations.
Fenner was joined by other panellists such as Csilla Lakatos, Senior Trade Economist for Indonesia and Timor-Leste, World Bank, Edwin Yap, Executive Director, CJ Century Logistics, and Elaine Hong, ICAEW Regional Director for China and South-East Asia.
They also discussed the importance of free-trade agreements and the implications of diversifying sourcing and production.
The forecast given at the event showed that recovery lagged for South-East Asian economies in Q3 2021, as countries battled a resurgence of cases due to the spread of the Delta variant.
Tightened restrictions weighed heavily on consumer spending, while significant disruptions in production and weakened manufacturing hindered growth across the region.
Vietnam recorded a 12 per cent fall in manufacturing activity quarter-on-quarter, which contributed to a lower GDP forecast of 6.2 per cent on the year, a record low for the region’s best performing economy during the pandemic.
GDP in Malaysia, Philippines, Thailand, and Vietnam in Q3 2021 was four per cent to six per cent lower compared to pre-pandemic growth in Q4 2019 and was only marginally higher in Singapore.
Prospects for South-East Asia in the year ahead are brighter, driven by easing restrictions and improved mobility as the pace of vaccinations steps up across the region.
The lifting of restrictions and resumption of domestic tourism should also see a strong rebound in household spending and services next year.
Overall, South-East Asia’s GDP growth is expected to reach 6.1 per cent.
Malaysia, the Philippines, and Vietnam are expected to experience high growth in 2022, with Malaysia forecast to achieve 6.7 per cent GDP growth, double the pace achieved in 2021.
Indonesia’s GDP is also expected to increase from 1.4 per cent to 6.0 per cent, a healthy growth after two years of falling below trend.
In Singapore, GDP growth will be more muted at 3.8 per cent.
A positive outlook for the region in 2022 but uncertainty abounds
The recovery of the tourism sector will likely be a partial one, as the uncertainty of new variants and increased costs associated with vaccine tests will continue to contribute to consumer hesitancy to travel. Sticking with its zero-Covid approach, China’s decision to keep outbound travel low will also dim the growth of the region’s tourism sectors.
The Omicron variant introduced an element of unpredictability, as there is currently little knowledge of the efficacy of current vaccines against it and what the health implications might be for the population. According to the forecast made at ICAEW’s event, the impact of the variant is expected to be acute but contained to Q1 2022. In the worst-case scenario where economies return to lockdowns, global GDP growth will drop from the current forecast of 4.5 per cent to 2.3 per cent. This would have a ripple effect on weaker export demand for South-East Asia, which is projected to reduce growth from 6.1 per cent to 4.3 per cent in this scenario.
“The Omicron variant poses a risk to the recovery and growth of South-East Asia economies, especially if it is able to circumvent the defences built up by the current vaccination progress,” Elaine Hong, ICAEW Regional Director for China and South-East Asia, said.
“At this turning point, it is essential for governments, businesses, and people in the region to demonstrate a spirit of solidarity and take collective responsibility in complying with public health guidelines, and diligently reporting COVID-19 infections.
“Small efforts will amount to a big difference in allowing us to live with a “new normal” and help build back a region of stronger and more sustainable economies.”
Supply chain disruptions to persist well in 2022
The ease of restrictions since August and relatively healthy world trade activities have contributed to the growth of South-East Asia’s manufacturing Purchasing Managers Index (PMI). Capacity on major shipping routes between Asia, Europe and the United States has recovered to pre-shipping levels, up six per cent during the first nine months of 2021.
Nonetheless, global demand has outstripped supply, leading to delays in shipping, and economies will have to find a way to build their resilience to supply chain disruptions and tackle inflation. In addition, capacity at ports will remain tight as Asian manufacturers work through a backlog of orders and strive to meet global demand. For example, in efforts to meet global demand, Malaysia’s main port, Port Klang, is experiencing the shortest average turnaround time for vessels among major global ports, about two days, while the global average is about one week.
Other findings from the Q4 Economic Insight Forum include:
- Inflation on the rise in South-East Asia
Inflation has been elevated for many Asian economies, driven by rising commodity prices and weather-related spikes in food security. It is expected to average about 2.8 per cent across the region in 2022. In Thailand, support measures such as electricity subsidies have cushioned the impact while in Singapore, the government has stepped in to normalise policy, starting with moving to a gradual appreciation of their nominal effective exchange rate. As inflationary pressures underlying weakened domestic demand continue to weigh on economies, central banks will need to keep their accommodative settings for the year ahead.
- Malaysia stands in good position for reopening while Indonesia is expected to lag in the near term
With over 90 per cent of its population fully vaccinated and the recent lifting of the most restrictive measures, the worst seems to have passed for Malaysia. Recovery on industrial production exports and indicators on retail mobility statistics contributed to a strong rebound in household spending in October and November in 2021, which will have a spill-over effect on employment and provide confidence for consumer spending. In addition, the government’s expansionary budget for next year and large fiscal stimulus packages should steady its recovery. This trend is already being reflected in a huge increase in retail and export volumes, which went from more than a 20 per cent deficit year-on-year in 2020 to grow to more than 20 per cent in 2021.
In Indonesia, an increase in COVID-19 cases and the subsequent restrictions in mobility have clipped its growth. However, a strong rebound for 2021 is expected, as investments will recover at a faster pace, supported by rising foreign direct investment (FDI) and recent government efforts to ease business licensing. Domestic demand will be a primary driver behind a forecast of six per cent growth next year. Modest fiscal consolidation, as well as proper management of vaccination rollout will be essential to ease the burden on its economy.
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