ICAEW: Delayed Recovery but on Track for Most ASEAN Economies in 2021

Although a resurgence of Covid-19 cases and reimplementation of restrictions across the region is expected to affect the near-term outlook, South-East Asia’s GDP is set to return to growth in 2021, a new report has predicted.

The latest Economic Outlook report from Oxford Economics (OE), commissioned by chartered accountancy body ICAEW, predicted that South-East Asia’s GDP will rebound strongly to 4.8% in 20211, after contracting 4.1% in 2020.

This rebound will be due to an improvement in global trade activities, accommodative macro-policies, continued government fiscal support and low interest rates across the region. Growth is also forecast to improve to 6.5% in 2022 as countries move closer to herd immunity and the recovery becomes more synchronised across sectors.

South-East Asian economies will continue to experience varying speeds of recovery in 2021, driven by countries’ abilities to contain fresh waves of Covid-19 infections and their success in vaccine procurement and distribution. Uncertainties remain as rates of recovery will depend on the progress of vaccine rollouts and whether the possibility of further lockdowns remains high in the near-term. However, the economic outlook report is optimistic about regional growth prospects for South-East Asia in the medium to long-term.

Vietnam’s growth to bounce back after restrictions are lifted

Vietnam was one of the only economies in the world to grow in 2020, due to its success in containing the pandemic. This early success enabled the economy to benefit from the surge in global trade activity and enjoy strong foreign direct investment (FDI) flows that boosted export-oriented and manufacturing industries. Despite the recent resurgence of Covid-19 cases, Vietnam’s growth outlook remains optimistic and the economy is expected to return to pre-Covid levels by the second half of 2021, with GDP forecast to grow at 7.6% in 2021, one of the highest in the region. 

Singapore and Vietnam are expected to continue leading the region in recovery. Despite a resurgence of Covid-19 cases in Vietnam, which has affected its manufacturing sector and export industries, its economy is predicted to rebound swiftly once restrictions are lifted. Similarly, Singapore’s success in rolling out the vaccines greatly contributes to an optimistic outlook for it, and the country is the only one in the region expected to reach herd immunity by the end of 2021. Singapore’s GDP is expected to recover to 6.4%, after contracting 5.4% in 2020, despite a possible short extension of its Phase 2 Heightened Alert.

Most SEA economies will experience accelerated recovery in H2 2021

Sequential GDP growth is expected to be weaker in Q2 than in Q1 across most economies in the region, as tighter restrictions will hit already fragile sectors which are negatively affected by social distancing measures or lowered household ‘social spending’.

Despite these headwinds, accommodative macroeconomic policies and a surge in world trade means that most of South East Asia will still record impressive GDP growth figures this year. An easing of restrictions expected in June and July for most countries is likely to facilitate an economic improvement in the second half of this year. Apart from Philippines and Thailand, most South-East Asian economies are expected to return to pre-Covid levels of growth this year, with Singapore and Malaysia set to see GDP growth in 2021 of between 2% to 2.5% above pre-Covid levels.

Recent lockdown restrictions in Singapore, Vietnam and Malaysia mean that household spending has reduced in Q2 2021. However, it is unlikely to dip significantly, as households and businesses are better equipped with digitalization to enable them to work and shop remotely. Governments have also used more targeted measures, compared to nationwide lockdowns which has minimised disruption.

“While most South-East Asian economies have experienced a surge in Covid-19 cases since the start of 2021, leading to the reinstatement of social distancing measures, this has dimmed, but not derailed regional economic recovery,” said Mark Billington, Managing Director International, ICAEW. “Moving forward, progress on vaccination will continue to be an important barometer for growth in the second half of 2021. We expect that countries which are able to contain new Covid-19 cases and reach high levels of vaccinations will outperform the rest of the region and be better placed for recovery.”

The economic forecast was presented by Sian Fenner, Oxford Economics Asia Lead Economist, at a recent ICAEW Regional Economic Forum. Sian was joined by other industry experts, including Kon Yin Tong, President of the Institute of Singapore Chartered Accountants (ISCA), Geoff Howie, Market Strategist, Singapore Exchange, and Warrick Cleine, Chairman and CEO, and Managing Partner, Deals, Tax and Legal, KPMG Vietnam and Cambodia for an insightful panel discussion on the growth outlook of the region. Mrs. Emily Hamblin, British Consul General in Ho Chi Minh City also had very helpful and positive opening remarks about the strategic partnerships between the UK and countries in the region.

Nam Pham (Vietnam Business Forum)