ICAEW report shows that the adverse impact on Southeast Asian economies is forecast to turn a corner in the second half of 2020

The report, titled Coronavirus global outlook: After the outbreak by Oxford Economics, predicts that an enduring COVID-19 outbreak will see world GDP shrink by 4.7 per cent 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 Southeast Asian economies will fall into recession in the first half of 2020, before recording a 1.9 per cent 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.

Along with this, Thailand is forecast to be one of the worst-hit amongst the Southeast Asian economies, because tourism and travel, which have particularly suffered because of the pandemic, account for 20 per cent 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 Southeast Asia, although it is not immune to the sharp slowdown in trade flows.

The adverse impact on Southeast Asian economies is forecast to turn the corner in the second half of 2020 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. Co-ordinated 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 per cent in 2021.

“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,” said Mark Billington, ICAEW regional director, Greater China and Southeast Asia.

“Our recovery will need to include sustainable solutions that benefit nature, society, and the 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,” he noted.

In China, the worst may have passed as the pandemic is largely contained. Gradual growth is expected with a recovery in consumption, reduced supply-side disruptions, and improved investment prospects especially in new industries and infrastructure, all supported by strong government policies.

Recent policies such as cuts in taxes and interest rates will support the economic recovery, although the easing will remain targeted and modest in size. This will contribute to a GDP growth of 0.8 per cent in 2020, followed by a 8.5 per cent growth in 2021 as both domestic and global economies recover.

In the words of Billington, China’s reopening is a "tell-tale sign" that other economies in the region will bounce back with time. A recovery in the second half of 2020, however, 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,” Billington said.

At the regional Virtual Economic Forum hosted by ICAEW on June 4, 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 Prof. 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, British Business Group Vietnam and dean of British University Vietnam; Justinian Habner, country director, Department for International Trade, British High Commission; and Suhaimi bin Ilias, chief economist, Maybank Investment Bank.

Following Ilias’s economic briefing, the panellists shared their views on the pandemic's impact on Southeast Asian economies, as well as their recovery outlook. Across the region, Vietnam is poised to take advantage of the situation as it benefits from a manufacturing shift by multinational companies, although caution was made against the impact of the slowdown in global demand that will continue to weigh on its supply chains and manufacturing sector.

Habner also discussed opportunities that will emerge post-pandemic, as COVID-19 has accelerated trends and efforts around digital transformation and innovation in areas such as trading, business transactions, and more.

Professor Koh concluded the forum discussion with three key takeaways for economies and businesses to adapt to a new normal: building trust, talent, and technology. VIR

Minh Hai

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