ICAEW: Vietnam Leads South-East Asia in Economic Recovery

The latest economic outlook report from Oxford Economics, commissioned by chartered accountancy body ICAEW, predicted that GDP across South-East Asia (SEA) will contract by 4.1% in 2020 before a sharp rebound to 6.2% in 2021. Countries which have been successful in controlling the pandemic like Vietnam and Singapore, have led the region in recovery.

Indeed, Vietnam is predicted to be the only economy to record positive growth at 2.3% in 2020.

Vietnam is predicted to be the only economy to record positive growth at 2.3% in 2020

Prolonged lockdowns and social distancing measures are forecast to cap global GDP growth this year, making it unlikely that a return to pre-COVID-19 GDP and trade activity will take place before late-2021. In South-East Asia, growth will likely be constrained by social distancing measures, but restrictions will continue to be eased over this year, especially in economies that are able to roll out vaccines relatively quickly.

While uncertainties remain, and most economies will take time to recoup lost output, risks have become more balanced with recent positive news on vaccines and regional growth prospects for South-East Asia in the medium to long term are optimistic.

The economic outlook report found that an economic rebound in 2021 remains contingent on the easing of lockdown restrictions, global recovery momentum and the successful roll-out of coronavirus vaccines. As such, progress on vaccination will be an important barometer for growth in 2021, with services likely to catch up faster in economies that are better placed with regards to vaccine procurement and distribution. Singapore is expected to lead in efforts to roll out the vaccine, but other SEA economies are likely to face bigger logistical challenges.

Overall, South-East Asia’s GDP is expected to experience a strong rebound to 6.2% in 2021, after contracting 4.1% in 2020. The rebound is in part due to low base effects from this year, but macro-policies are set to remain very accommodative with extensive fiscal support and low interest rates. In Singapore, GDP is forecast to recover to 5.7%, after contracting 6% in 2020, as social distancing restrictions continue to ease under the upcoming Phase 3.

South-East Asia has experienced a three-speed recovery, with differences primarily driven by the varying success of countries’ abilities to contain fresh waves of COVID-19 infections and implement lockdown exit strategies to safely reopen their economies, as well as fiscal and monetary policy support. Countries which have been successful in controlling the pandemic like Vietnam and Singapore, have led the region in recovery. Indeed, Vietnam is predicted to be the only economy to record positive growth this year at 2.3%.

Thailand also had early success in stemming the tide of COVID-19 infections. However, travel restrictions have hit its economy hard as travel and tourism account for 20% of its GDP. The Thai economy is expected to continue to recover but at a gradual pace, assuming that public spending does more of the heavy lifting to support the recovery over the rest of the year into 2021.

On the other end of the spectrum, the Philippines has suffered strict and extended lockdowns and its fiscal response has been meagre. As such, the Philippines’ GDP is expected to plunge by nearly 10% in 2020, although it is likely to see growth of 7.8% in 2021 given the gradual easing of restrictions.

“The biggest concern for South-East Asian economies is keeping additional waves of infection at bay while gradually bringing society and economic activities back to speed,” said Mark Billington, ICAEW Regional Director, Greater China and South-East Asia. “The interconnectedness of the global economy means that countries will have to work collectively to strengthen their pandemic response plans and address the dual challenges of resuming business activities while keeping their people safe.”

Despite the predictions of an economic rebound in 2021, major uncertainties which could affect post-pandemic recovery remain, such as slow progress in the roll-out of mass vaccination programmes, a global second wave resulting in another global lockdown, and a financial crisis leading to major economic damage. Optimistically, vaccine breakthroughs and post-election US stimulus could also speed up near-term recovery and avoid long-term damage.

The economic forecast was presented by Sian Fenner, Oxford Economics Asia Lead Economist, at a recent ICAEW Economic Forum. Oxford Economics is one of the world’s foremost advisory firms, providing analysis on 200 countries, 100 industries and 3,000 cities.

Nam Pham (Vietnam Business Forum)