Asean economic rebound to catch up with the rest of Asia as domestic demand returns

SOUTH-EAST Asia is set to catch up with the rest of the region in the economic recovery from the Covid-19 pandemic, as the vaccination-enabled resumption of domestic demand fuels the rebound from a low base, new forecasts have suggested.

Morgan Stanley on Sunday (Nov 14) raised its Asean gross domestic product (GDP) projection to 5.6 per cent in 2022, up from 5.4 per cent before, with the South-east Asian bloc outpacing the overall Asia forecast of 5.4 per cent. The Philippines is tipped to lead the pack at 7.5 per cent, with strong growth also pencilled for Malaysia (5.8 per cent) and Indonesia (5.6 per cent).

While external-oriented markets such as North Asian economies and Singapore fared better in the early part of the pandemic, South-east Asia is now closing the gap, the bank's analysts said.

Though their report noted that domestic-facing economies were hit worse by virus containment measures, it added that vaccination and reopening "will help unlock domestic demand growth and enable the laggard economies in Asean to catch up to their North Asia counterparts".

"These economies have earlier trailed behind on Covid management and vaccination rates and would now see bigger growth deltas unlocked on the domestic demand front as vaccination rates," the report said, although it flagged "a less conducive political environment" in Malaysia and Thailand.

Granted, Thailand's smaller-than-expected third-quarter economic contraction of 0.3 per cent has lifted the GDP outlook for 2022.

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"Barring another severe outbreak, we expect a solid sequential rebound in private consumption and activity in the fourth quarter, with the recovery to gain traction over 2022," wrote Oxford Economics lead economist Sian Fenner, while adding that the recovery in 2022 should be "supported by global demand and accommodative macro policies".

But Thailand's reliance on the tourism sector remains a concern for watchers, with Maybank Kim Eng economists warning that "GDP in 2022 will still be around 0.8 per cent below 2019 levels, as tourist arrivals are unlikely to return to pre-pandemic levels ... for another 2 to 3 years".

As such, the Morgan Stanley report suggested that "Indonesia, the Philippines and Singapore are better placed" for growth, and added that Indonesia and the Philippines "have some of the most domestic demand-oriented economies" under coverage.

The house noted in a separate report that Asia's productivity dynamics are expected to improve significantly in a virtuous cycle that will be driven by export strength and spill over into capacity utilisation, capital expenditure, jobs growth, domestic demand, and fiscal and monetary policy.

"Over the next 2 years, we expect external demand conditions to remain strong - the right kind of fuel for Asia's growth engine," the analysts concluded.