Despite Covid-19 resurgence, South-east Asia still set for strong 2021 rebound: ICAEW

SOUTH-EAST Asia is still set for a 4.8 per cent rebound in growth in 2021, despite a resurgence in Covid-19 cases and reintroduced restrictions across the region, according to a June 7 report by Oxford Economics, commissioned by the Institute of Chartered Accountants in England and Wales (ICAEW).

The surge in Covid-19 cases since the start of the year has "dimmed, but not derailed regional economic recovery", said ICAEW managing director international Mark Billington. Vaccination progress "will continue to be an important barometer for growth in the second half of 2021", he added.

The expected rebound follows a 4.1 per cent regional contraction in gross domestic product (GDP) in 2020. The report sees the rebound as being powered by improved global trade activities, accommodative macropolicies, continued government fiscal support, and low interest rates across the region.

In 2022, growth is forecast to improve to 6.5 per cent, as countries move closer to herd immunity and the recovery becomes more synchronised across sectors.

Across economies, the speed of recovery will vary based on each country's ability to tackle the pandemic.

Singapore and Vietnam are expected to continue leading the region in recovery. Vietnam is expected to see 7.6 per cent growth, with the economy returning to pre-Covid levels by the second half of 2021.

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Singapore's success in its vaccine roll-out "greatly contributes to an optimistic outlook for it, and the country is the only one in the region expected to reach herd immunity by the end of 2021", said the report. The forecast is for 6.4 per cent growth, despite a potential extension of the current Phase 2 (Heightened Alert) situation.

Sequential growth is expected to weaken in Q2 from Q1, as tighter restrictions take a toll. But restrictions are expected to ease in June and July for most countries, which "is likely to facilitate an economic improvement in the second half of this year", said the report.

Apart from the Philippines and Thailand, most South-East Asian economies are expected to return to pre-Covid levels of growth this year, with Singapore and Malaysia possibly seeing growth of between 2 per cent and 2.5 per cent above pre-Covid levels.

But the report noted the persistence of major uncertainties which could affect the post-pandemic recovery, such as the effectiveness of vaccines against new variants; consumer caution; and the return of inflation, which could mean that GDP will remain below potential.

Inflation concerns have risen since the start of the year, and are expected to continue rising, said the report. The Philippines' inflation rate is expected to remain elevated above 4 per cent for most of this year, while inflation in Malaysia has already reached 3.4 per cent.