Snail’s pace of Southeast Asia’s Economic Recovery

  • Shrabana Barua is assistant professor, department of political science, Hindu College, University of Delhi
By mid-year 2021, it was noted that the economic recovery stories were more optimistic than reality depicted.
By mid-year 2021, it was noted that the economic recovery stories were more optimistic than reality depicted.
Published on Nov 27, 2021 06:48 PM IST
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ByHindustan Times

The World Economic Outlook (WEO) Update January 2021 projected global economic growth at 5.5%. Gross Domestic Product (GDP) growth projections for the Association of South East Asian Nations (ASEAN) countries, i.e. Indonesia, Malaysia, Thailand, Philippines and Singapore, stood at 5.2% for this year as against -3.7% last year. It also pinned GDP growth for the same group at 6% for 2022. Optimism had picked pace as the WEO of October 2020 suggested “stronger-than-projected momentum” of vaccination roll-out. On the trade front, though international trade was on a downward stride, oversized demand for certain items such as Personal Protective Equipment (PPE) kits, electronics and sale of such items induced by a work-from-home practice, gave hopes of quicker economic recovery in an export driven region. Yet, Covid-19 has been harsh for its unpredictability.

 

By mid-year 2021, it was noted that the economic recovery stories were more optimistic than reality depicted. Look at two of the most growth generating sectors in Southeast Asia. First, with the closing of international borders and travel restrictions imposed by mid-2020, the tourism industry came to a sudden halt. The tourism sector in Southeast Asia’s largest economy – Indonesia, dipped by 75%. In 2019, it made for 5.7% of the country’s GDP and created 12.6 million jobs. When Covid struck, foreign arrivals decreased from 11.6 million in 2019 to 4.02 million in 2020. Similarly, Philippines marked a drop of 85%, Thailand by 83%, Cambodia by 80% and Myanmar by 75%.

 

Published in March 2021, the Asian Development Outlook (ADB Brief 175), identifies restoring demand for tourism as essential. But things are more complex than it seems. In Indonesia, the government had attempted to replicate the usually successfully Bali model by promoting high-end tourism through its ‘10 New Balis’ programme. For a post-Covid recovery plan, this helped attract few tourists who could afford expensive packages, in turn benefitting the economy in terms of profit. But, it did not fare well in terms of enabling local population during times of crisis, when unemployment was on a rise. Today, the tourism industry is beginning to breathe again, especially with the upcoming holiday season. But recovery is still slow.

 

There is a second sector that needs analysis. The slowdown of international trade, in Southeast Asia particularly as a result of early lockdowns in China, led to supply chains disruptions and adverse impacts on domestic level production. Interestingly, exports of merchandise, which dipped by almost one-fifth around mid-2020, picked up in October last year and continued to create export demand from states like Vietnam, Singapore, Malaysia and Thailand. From automotive to chemical products, agricultural items to clothes, exports saw good first half growth in early 2021. But by April, vital manufacturing inputs and exports of final products were impaired again. Malaysia, Thailand and Vietnam are most hit as they form the core of Southeast Asia’s manufacturing hub. 

 

The ADB downgraded its growth forecast for Southeast Asia by September 2021 from 4.4% to 3.1% for this year. For 2022, it was lowered from 5.1% to 5%. Exceptions were made for Singapore and Philippines. In contrast, it has upgraded East Asia’s economic forecast from 7.4% to 7.6%. Similarly, Central Asia’s growth prospects have improved from 3.4% to 4.1%. What then is the issue with Southeast Asia? 

 

Two problems are clearly visible. One, recurring Covid waves and new variants. In Vietnam for instance, from tech supplier facilities in the north, to footwear production facilities in south that forms part of the supply chain for Nike and Adidas, were affected by locked down, starting from April 2021. This is despite the country’s commendable public health response. By June, a hybrid virus of India and United Kingdom (UK) variant, was reported in the country. Two, slow vaccination process and low fiscal largesse for the health sector. By June this year, except for Singapore, both in terms of vaccination and fiscal response, states performed below expectation. In 2020 for example, Southeast Asia’s fiscal response was only 3% of GDP as compared to the global 13.5%, and even higher figures in some states in the West. Things have gained pace now. In the vaccination front, for instance, Cambodia reported 85.3% vaccination of it population by October 2021. 

 

When solutions are being sought, ADB’s proposals come useful. It has identified five key sectors that need focus for revival of Southeast Asian economies – tourism, agro-processing, garments among the established areas, electronics and digital trade amongst the one with future potential. Besides, time and over it has been underlined that multilateral cooperation is the key to steady economic recovery.  Within the region, ASEAN has been the leading force in this context. ASEAN Emergency Operating Centre Network for Public Health Emergency and the ASEAN BioDiaspora Virtual Centre have been effective ways in dealing with the pandemic situation. International help in terms of aid, assistance and advise along with financial support have come from states such as US and Japan. 

 

As we approach the end of the year, instead of Christmas season, many are unfortunately reminded of the upcoming second anniversary of the start of Covid-19, reported only on  December 31, 2019. By the time the World Health Organization (WHO) released its Strategic Preparedness and Response Plan in February 2020, news about the first case of Covid outside China came on January 13 last year, from Thailand. Now, it only makes sense to assess and learn from the experiences, of course bound by unpredictability of the mutating corona virus. 

 

(Shrabana Barua is assistant professor, department of political science, Hindu College, University of Delhi)

 

 

(The views expressed are personal)

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