Asean poised for rebound, but growth fragile as Ukraine war adds to list of risks: OECD

THE economies of the Association of South-east Asian Nations (Asean) are projected to grow by 5.2 per cent in 2022 and 2023 - but there are significant uncertainties from Russia's invasion of Ukraine to immediate risks such as the Covid-19, rising inflation and supply chain disruptions, said the Organisation for Economic Cooperation and Development (OECD).

In its report Economic Outlook for Southeast Asia, China and India 2022 - Financing for Sustainable Recovery from Covid-19, the OECD said that economic growth in Asean will range from -0.3 per cent in Myanmar to 7 per cent in the Philippines in 2022.

"Nevermind the impact of the war in Ukraine. The Omicron variant and potential new variants of Covid-19 are major areas of risks," said Moreno Bertoldi, head of the Global Economy, Directorate General for Economic and Financial Affairs at the European Commission, at a webinar launch of the report.

The Ukraine war, he said, is causing a strong supply shock globally. This adds further to the inflationary pressures and disruptions that had already been triggered by the Covid-19 pandemic.

"The moves in commodity prices and financial markets since the outbreak of the war could also put the recovery of Asian economies at some risk, though we expect the overall impact to be smaller in Asia than in OECD economies," he added.

So far, the most immediate impact for Asean economies is seen in the prices of energy and agricultural commodities.

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Bertoldi warned: "It's important to note, though, that the current price spike does not reflect in our view, real shortages in supply just yet."

The Ukraine crisis is also having a significant negative impact on confidence, which in turn will negatively impact private consumption and business investment decisions, he said.

"Growing uncertainty could increase capital flow volatility in Asean countries and elsewhere. Governments in the region therefore need to continue to implement effective macroeconomic and structural policies to safeguard their economies and to minimise the impact of these developments on consumers and businesses," he said.

According to the OECD report, led by Kensuke Tanaka, head of the Asia Desk at OECD Development Centre, the pandemic has inflicted substantial damage on labour markets in emerging Asia.

"This deterioration has been particularly acute in the Philippines and Vietnam. In terms of individual sectors across emerging Asia, the impact has been especially heavy for the micro-, small- and medium-sized enterprises. Sectors of the economy that are especially cyclical, and indeed those that rely on face-to-face interactions, have endured the gravest job losses since the onset of the Covid-19 crisis."

Tanaka said international trade was the main engine of recovery for the region in 2021, and merchandise exports in Indonesia, Malaysia, Thailand, Vietnam, China and India have exceeded their pre-pandemic levels in recent months.

However, he warned that supply disruptions affecting key sectors such as semiconductors could weigh on growth in some countries in the region.

Real gross domestic product (GDP) growth for Indonesia is projected to reach 5.2 per cent in 2022, and 5.1 per cent in 2023.

Malaysia's real output is projected to expand at an annual rate of 6 per cent this year, and 5.5 per cent in 2023. OECD said the country's outlook may be clouded by the fast-spreading Omicron variant and an intensifying degree of disruption to supply chains which may slow the recovery in the near term.

The Philippines economy is projected to grow the fastest in South-east Asia this year, at 7 per cent, while output growth is likely to remain strong in 2023 at 6.1 per cent.

Thailand's real GDP is forecast to grow by 3.8 per cent this year, before accelerating to 4.4 per cent in 2023. For this tourism-dependent economy, the pandemic remains a major risk.

In Vietnam, surging Covid-19 caseloads with a record-high number of cases recorded in February 2022 constitute a headwind to economic growth, in addition to lingering supply-chain disruptions. Real GDP is expected to expand by 6.5 per cent in 2022, and then edge 6.9 per cent higher in 2023.

Brunei Darussalam, which recorded weak growth for most of 2021, is set to grow by 3.5 per cent in 2022, followed by an expansion of 3 per cent in 2023. Singapore is projected to achieve a 4 per cent growth in 2022, followed by 3 per cent in 2023.