ICAEW:COVID-19 outbreak cuts South-East Asia’s GDP growth forecast to 4.2% in 2020

10:21:52 AM | 17/3/2020

Economic growth across the South-East Asia region is expected to slow to 4.2% in 2020,as the novel coronavirus (COVID-19) outbreakcontinues to weigh on tourism, disrupt regional supply chains and dampen household spending. This is according to the latestEconomic Update: South-East Asiareport from chartered accountancy body ICAEW.

However, growth is expected to spring back to 5% in 2021, supported by accommodative macro policies and fiscal stimulus. 

The adverse impact of the COVID-19 outbreak on China’s economy is set to spill over significantly into the South East Asia (SEA) region through lower tourism flows, household spending and varying degrees of supply chain disruptions. As such, tourism- and export-dependent economies can expect the most impact. Thailand will be the worst hit amongst the SEA economies, while Vietnam and Singapore will suffer from supply-side disruptions and travel bans. On the other hand, the impact on Indonesia’s growth is likely to be contained as the country is less reliant on tourism.

However, impacts on tourism and supply chains are expected to be short-lived, with a significant recovery in the second half of 2020. The US-China Phase One trade deal and early signs of a recovering global electronics cycle bode well for the region’s external outlook, with export and import momentum expected to improve significantly throughout the rest of the year. Loosening of monetary policy within the region and proactive boosts to fiscal spending should also offer additional support to domestic demand and partially ease the impact of the virus outbreak. Overall, GDP growth across the region is forecasted to fall to 4.2% in 2020, down from 4.5% in 2019, the slowest pace of growth since the 2008 global financial crisis.

“While the impact of the COVID-19 outbreak will be larger than that of SARS due to greater movement of people and interdependence of supply chains, we expect that most of the economic impact will be in the first quarter of 2020, and growth will recover in the second half of 2020,” said Sian Fenner, ICAEW Economic Advisor & Oxford Economics Lead Asia Economist. “As such, we have downgraded our growth forecast for the region to 4.2% in 2020, although this should be followed by a rebound to 5% growth in 2021.”

Against the backdrop of a deteriorating economic outlook, expansionary monetary policies and fiscal stimulus will help soften the impact of the virus outbreak. Thailand, Malaysia and the Philippines have cut policy rates by 25 basis points each this year, with Indonesia likely to push for a further cut in Q1 2020. In Singapore, the Monetary Authority of Singapore (MAS) may shift to a zero-appreciation bias in its trade-weighted currency band in April.

On the fiscal front, Singapore’s introduction of a larger-than-expected fiscal relief package (1.2% of GDP) in its Budget 2020 will help its economy cope with the outbreak while Thailand and Malaysia have also recently followed suit.

Mark Billington, ICAEW Regional Director, Greater China and South-East Asia, said, “We remain cautious that if the outbreak is prolonged, longer-term expenditures could be affected, slashing growth even further. At the moment, we expect the impact of COVID-19 to be high, but short-lived and cushioned by countries’ efforts to boost domestic demand.”

T.N (Vietnam Business Forum)