Omicron spread could pare South-east Asia growth forecasts by up to 0.8 percentage point: ADB

SOUTH-EAST Asia's economy is expected to expand by 5.1 per cent in 2022 - but the spread of the Omicron virus variant could shave up to 0.8 percentage point off this estimate, the Asian Development Bank (ADB) warned in a new report.

The downside scenario could occur if Omicron disrupts supply and demand - and thus affects economic activity - for 6 months. Vietnam, Thailand, Malaysia and Laos are the most vulnerable markets.

The varying impact of Omicron on growth forecasts ranges from downgrades of 1.9 points in Vietnam and 1.1 points in Thailand, to just 0.2 point in Singapore, should Covid-19 infections spike this year.

Granted, "we do not see a big impact" from the war in Ukraine on growth projections for Asean, Ramesh Subramaniam, director-general of the ADB's South-east Asia department, told a Southeast Asia Development Symposium panel on Wednesday (Mar 16).

ADB senior economist James Villafuerte said there may be spillover impact on South-east Asia as the Russian invasion of Ukraine knocks a potential 0.2 point to 0.5 point off global growth in 2022 - "but that won't be large". Instead, both men stressed that the main impact on the region will be inflationary.

Otherwise, Subramaniam called the path to economic recovery uneven across the region, amid the Covid-19 pandemic: "Economies that rely on tourism or (a) largely services sector, have a large informal sector and highly concentrated growth drivers with low levels of economic diversification, will unfortunately continue to struggle.

"This divergence could erode the efforts that are taken by countries to narrow development gaps."

Also, the region's economic output is likely to be down by 10.3 per cent in 2022 against a baseline without the Covid-19 pandemic, said the ADB projections.

However, the ADB forecast "2 diverging growth scenarios", with a rosier outlook for Singapore, the Philippines, Malaysia and Indonesia. Thailand, Vietnam, Brunei, Cambodia and Laos are unlikely to fare as well, due to factors such as heavier economic reliance on tourism.

Long-term scarring to the economy and labour market remains a threat in the aftermath of the pandemic, as the report noted "employment-intensive sectors like tourism will take a while to recover" in the Philippines. On the bright side, the report said that ongoing policy reforms still "bode well for investment and employment" there.

On the other hand, Cambodia could see gross domestic product "permanently lower than it would have been if the pandemic had not occurred", the report said.

The hit comes even though the Cambodian economy is diversifying away from a traditional emphasis on garment, travel goods and footwear (GTF) production, to agricultural and non-GTF exports.

Still, Villafuerte told the panel: "There's still good hope that Cambodia, while it will not immediately go back to its pre-pandemic trend will still post quite a respectable growth in the next 2 years."

Similarly, growth in Laos is expected to be below pre-pandemic levels until 2023. Tourism, which makes up about one-tenth of the economy, is dominated by local small businesses that have had limited take-up of technology - a blow to the sector's competitiveness.

Thailand also faces a slow recovery in the tourism sector, which is one-fifth of the economy - despite plans to shift from mass-market international tourism and promote higher-value tourism. A full recovery to pre-pandemic arrivals and spending could take more than 2 years, the ADB said in its report.

To improve economic and social systems in South-east Asia, the ADB has urged policymakers to prioritise reforms that will raise competitiveness and productivity.

Such measures may include job creation schemes - especially at small businesses, which could also benefit from tax relief, credit support and worker training, it said.

Governments' economic recovery plans should promote green infrastructure investments and regulations that curb carbon-intensive industrial activity, the ADB added.