ICAEW: Vietnam is expected to be the only South-East Asian economy to record positive growth this year

The Global Economic Outlook report from Oxford Economics, commissioned by chartered accountancy body ICAEW suggests that while economic activities are picking up again and growth is expected to eventually rebound to 6.4 percent in 2021, the pace of recovery over the second half of 2020 will vary across the region, depending on the easing of lockdown restrictions and improved export demand.

The Covid-19 outbreak reduced global GDP by around 9 percent in the first half of 2020, at least three times the size of the 2007-2009 global financial crisis. Despite a very strong rebound in the third quarter of 6.4 percent, the report suggests that world GDP will contract overall by 4.4 percent in 2020.

However, there is momentum building in the second half of 2020 (H2), which will drive growth to 5.8 percent in 2021, and lead the global economy to recover to its pre-crisis peak by the midpoint of next year, a similar time frame as the post-2008 financial crisis recovery.

The strength of the rebound in economic activity over the coming quarters in South-East Asia remains uncertain, particularly in the fourth quarter of 2020, after the expected initial strong bounce in global trade and domestic activity post-lockdowns has faded. Additionally, varying success rates in containing the Covid-19 outbreak, and differing lockdown exit strategies will widen the disparities in economic growth in the region. Economies which have convincingly contained the outbreak such as Thailand and Vietnam will see a stronger recovery than Indonesia and the Philippines, which are battling new waves of Covid-19 outbreak after restrictions were prematurely relaxed.

While growth in Singapore is forecast to contract by 5.7 percent this year because of a severe decline in global trade, signs of a recovery in exports and imports will see it rebound to 6.1 percent in 2021. Heavily export-oriented economies like Singapore and Vietnam will continue to benefit from a stabilisation in trade indicators, shown by recent improvements in exports over the past few months.

The report predicted that recovery prospects looked brightest for Vietnam, which had contained the virus very effectively until recently. Vietnam is expected to be the only South-East Asian economy to record positive growth this year with its GDP rising by 2.3 percent this year, and 8 percent in 2021.

Malaysia’s exports were predicted to benefit from improving Chinese import demand and the electronics cycle. Nonetheless, the speed of its recovery will likely slow given the current sluggish global demand, high unemployment and weak investment, and its economy is forecast to shrink by 6 percent this year, followed by growth of 6.6 percent in 2021.

“The road to recovery for economies in South-East Asia will be a long one, with existing US-China tensions, a long-term slowdown in global trade activity, and a prolonged Covid-19 pandemic weighing on the region’s growth prospects,” said Mark Billington, ICAEW Regional Director, Greater China and South-East Asia. “While each region’s economy has suffered due to the crisis, the unique economic structures mean the crisis has played out in different ways. Ultimately, countries that can strike a balance between resuming economic activity and keeping the outbreak under control will see their economies bounce back faster than the rest.”

At an International Economic Forum hosted by ICAEW on 2 September 2020, industry leaders discussed the expected growth in the Middle East, China and South-East Asia, focused on the recovery in consumption, accommodative macro policies, international trade and the impact of the shift of investments.

Scott Livermore, Chief Economist and Managing Director at Oxford Economics Middle East presented key findings from the report at the inaugural global forum. Scott was joined by other panellists, including Dr. Ernest Kan, Chief Advisor of Capital Markets, China, Singapore Exchange; Zibo Cao, Associate Director, Macquarie Infrastructure and Real Assets Fund; and Tim Fox, Economist.

The lively panel discussion touched on the outlook of the global and regional recovery from the pandemic, particularly China’s rebound and its implications for South-East Asia. The panellists also shared their point of view on how well governments across the region have handled the pandemic and how the varying recovery progress across economies can impact the region moving forward.