ICAEW: Most SEA Economies Expect GDP Growth to Rebound in 2021

9:21:46 AM | 11/6/2020

Most South-East Asian economies are expected to fall into recession in the first half of 2020 due to the severe impact of the COVID-19 outbreak, according to a new report commissioned by ICAEW. However, growth is expected to spring back to an average 8 percent in 2021, supported by fiscal stimulus packages and monetary easing.

The report, Coronavirus global outlook: After the outbreak by Oxford Economics, predicts that an enduring COVID-19 outbreak will see world GDP shrink by 4.7 percent in 2020, more than double the impact of the global financial crisis in 2008 and the biggest global recession in post-war history. Similarly, most South-East Asian (SEA) economies will fall into recession in the first half of 2020 (H1), before recording a 1.9 percent contraction in 2020.

Measures to lock down countries and cities in the region to varying degrees have substantially cut domestic demand, with many countries bringing in restrictions on exports of food produce to safeguard domestic food supplies, further dampening export growth. Thailand is forecast to be one of the worst hit amongst SEA economies, because tourism and travel, which have particularly suffered because of the pandemic, account for 20 percent of its GDP. On the other hand, Vietnam will emerge the least affected, with its lead in unwinding measures as compared to other countries in South-East Asia, although it is not immune to the sharp slowdown in trade flows.

The adverse impact on South-East Asian economies is forecast to turn the corner in the second half of 2020 (H2) as Chinese import demand and global trade recover at a consistent pace, while a slower pace of normalisation will continue to weigh on tourism-dependent economies. Coordinated fiscal stimulus packages and monetary easing from authorities across the region will support the recovery in economic growth, with GDP growth eventually set to rebound to an average 8 percent in 2021.

Mark Billington, ICAEW Regional Director, Greater China and South-East Asia, said: “Beyond a global health and economic crisis, the pandemic is also an important chapter of an unfolding bigger interconnected catastrophe of climate emergency, massive biodiversity loss and increasing inequality. Our recovery will need to include sustainable solutions that benefit nature, society and economy. As countries in the region gradually ease lockdown restrictions and start to open their economies, organisations and businesses will have to adapt to a ‘new normal’ for sustained growth and performance in the post-outbreak world.”

Mark Billington added: “China’s reopening is a tell-tale sign that other economies in the region will bounce back with time. However, a recovery in the second half of 2020 will not make up for lost activity in the first half of the year and we expect global GDP to return to pre-crisis levels only by mid-2021. 

While fast-growing emerging markets are more likely to reverse the losses in GDP than their slower-growing counterparts, each region will have its own particular experience with the crisis that will dictate the depth of its recession and the strength of its recovery.”

At the regional Virtual Economic Forum hosted by ICAEW on 4 June 2020, industry leaders discussed the impact of COVID-19 on businesses in the ASEAN region, with a focus on the long-term effects on productivity, and how businesses can cope and adjust to the new normal post-pandemic. The panel discussion was moderated by Professor Annie Koh, Vice President of Business Development, V3 Group Professor of Family Entrepreneurship, Professor of Finance (Practice) at Singapore Management University, and joined by Christopher Jeffery, Chairman, The British Business Group Vietnam and Dean of the British University Vietnam; Justinian Habner, Country Director, Department for International Trade, British High Commission; and Suhaimi bin Ilias, Chief Economist, Maybank Investment Bank.

Across the region, Vietnam is poised to take advantage of the situation as it benefits from a manufacturing shift by multinational companies, although Mr. Jeffery cautioned against the impact of the slowdown in global demand that will continue to weigh on its supply chains and manufacturing sector.

Nam Pham (Vietnam Business Forum)