Medical product sector to cushion Asean's growth amid pandemic

ASEAN'S medical product sector could cushion the region's growth during the Covid-19 pandemic, though it faces risks from protectionism in medical trade, according to an Oct 14 Citi report.

As a whole, emerging Asia is the largest exporter of medical products, with a market share of 14.6 per cent. China dominates, with Asean's strength lying in commodity-related products and broader personal protective equipment (PPE).

Compared to the rest of emerging Asia, Asean should see a larger gross domestic product (GDP) cushion in the near term, said the report. Every 10 percentage point increase in medical exports is expected to lift the Asean-6 GDP by 0.07 percentage points, compared to less than 0.05 percentage points in other emerging Asia economies.

Strong pharmaceutical production in the first half of 2020 may have offset 10 per cent and 6 per cent of the GDP fall for Singapore and Thailand respectively, while rubber glove production offset 2 per cent of Malaysia's contraction.

Capacity additions have been driven by local companies in Malaysia and Singapore, but by foreign direct investment in Vietnam and Thailand, "reflecting a broader supply-chain diversification away from China", said the report.

But medical protectionism puts this growth cushion at risk. Singapore, and to a smaller extent Vietnam, are vulnerable to reshoring, given their export orientation and dependence on foreign firms.

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All Asean economies -- but especially Singapore and Vietnam -- are also vulnerable to supply disruptions due to export controls, although less so for Indonesia if capacity-building efforts for self-sufficiency bear fruit.