Along with Singapore, Vietnam is expected to lead new cycle
Vietnam's economic growth outlook remains optimistic and the economy is forecast to recover to pre-Covid-19 levels in the second half of 2021.
The Institute of Chartered Accountants of England and Wales (ICAEW) and Oxford Economics have released the latest Southeast Asia Economic Outlook. Despite the new outbreak of Covid-19, Vietnam's growth prospects are still optimistic and the economy is forecast to recover to the pre-Covid-19 level in the second half of 2021.
Vietnam's GDP is forecast to increase to 7.6% in 2021, the highest in the region.
According to the report, Vietnam was one of the few economies in the world that still grew in 2020 thanks to its success in fighting the epidemic. This helped the economy benefit from an increase in global business activity and strong foreign investment (FDI), thereby boosting manufacturing industries and export.
Singapore and Vietnam are expected to continue to lead the economic recovery in the region. Although the return of Covid-19 cases in Vietnam is affecting manufacturing industries and exports, the economy is forecast to grow rapidly once restrictions are lifted.
Similarly, Singapore's success in deploying mass vaccinations has contributed greatly to its optimistic outlook. It is the only country in the region that may achieve community immunity by the end of 2021. Singapore's GDP is estimated to grow 6.4% after a 5.4% decline in 2020.
According to ICAEW, Southeast Asia's GDP will increase sharply to 4.8% in 2021 after falling 4.1% in 2020. This growth is thanks to an improvement in global business activities, moderated macroeconomics, continued support from the government budget, and low interest rates throughout the region.
Growth is forecast to reach 6.5% in 2022 as countries gradually reach the threshold of herd immunity. The recovery will be more uniform across all economic sectors.
Southeast Asian economies will continue to see varying rates of recovery in 2021, led by countries' ability to contain the new wave of Covid-19 infections and their success in the purchase and distribution of vaccines.
Uncertainty is still there because the extent of a recovery depends on the progress of vaccinations and the possibility of blockade in the short term. However, the Economic Outlook Report remains optimistic about the prospect of a recovery throughout Southeast Asia in the medium and long term.
Vietnam's economy is expected to recover strongly.
Economic growth and vaccinations
It is also forecast that most Southeast Asian economies will recover quickly in the second half of 2021.
The GDP growth of most economies in the region in the second quarter is expected to be weaker than in the first quarter, as stricter restrictions have affected sensitive industries negatively affected by social distancing or reduced household consumption.
Despite many challenges, macroeconomic policies and an increase in business around the world have helped most of Southeast Asia to achieve impressive GDP growth this year.
The easing of restrictions in May and July in most countries will spur economic improvement in the second half of this year. Apart from the Philippines and Thailand, most Southeast Asian economies expect to resume to a pre-Covid-19 growth rate this year, with Singapore and Malaysia to witness GDP growth rate between 2% and 2.5%, higher than the pre-Covid-19 levels.
The recent lockdowns in Singapore, Vietnam and Malaysia may make household consumption decrease in the second quarter of 2021. However, the decrease will not be too much because households and businesses are equipped with digital solutions to increase their ability to work and shop remotely. Governments are also resorting to more targeted measures than nationwide lockdowns to minimize production disruptions.
The Singapore government has introduced additional financial support. In addition, export-oriented industries such as electronics manufacturing, semiconductors and pharmaceuticals are expected to contribute to growth in the third quarter and beyond, thanks to a strong global recovery.
The managing director international at ICAEW, Mark Billington, said that while all Southeast Asian economies experienced an increase in Covid-19 cases from the beginning of 2021, leading to implementation of social distancing, this has weakened but not prevented the economic recovery capacity of the entire region.
According to Billington, countries' determination and speed of vaccinations will continue to be an important measure of growth in the second half of 2021.
The uncertainties affecting post-pandemic recovery are still there, such as the effectiveness of vaccines in preventing the spread of new coronavirus variants, public apprehension, and the return of inflation, all slowing down GDP growth.
Concerns about inflation will increase in the next few months across the region. Inflation in the Philippines is expected to remain high at 4% for the entire year, while inflation in Malaysia is already at 3.4%.
As the Covid-19 pandemic persists, Vietnam's economy will still face many difficulties, but the country has the potential to increase productivity and develop at a higher rate than many other countries.