Southeast Asia's GDP growth to contract by 4.2% in 2020; Vietnam recovery prospects brightest: ICAEW

Covid-19 delivered the largest growth shock South-East Asia has seen since the Asian financial crisis in 1997, and regional growth is forecast to contract by 4.2% in 2020, according to a new report.
SEPTEMBER 07, 2020 - 4:41 PM

Recovery prospects look brightest for VIetnam, according to the latest Global Economic Outlook report from Oxford Economics, commissioned by chartered accountancy body ICAEW, adding that the country is expected to be the only South-east Asian economy to record positive growth this year,

The report said that overall, it expects Southeast Asia's GDP growth to contract by 4.2 per cent in 2020. It added that the strength of the rebound in economic activity over the coming quarters in the region remains uncertain, particularly in the fourth quarter of 2020, after the expected initial strong bounce in global trade and domestic activity post-lockdowns has faded.

“The road to recovery for economies in Southeast Asia will be a long one, with existing US-China tensions, a long-term slowdown in global trade activity, and a prolonged Covid-19 pandemic weighing on the region’s growth prospects,” said Mark Billington, ICAEW regional director, Greater China and South-East Asia.

“While each region’s economy has suffered due to the crisis, the unique economic structures mean the crisis has played out in different ways. Ultimately, countries that can strike a balance between resuming economic activity and keeping the outbreak under control will see their economies bounce back faster than the rest." 

Specifically, economies which have convincingly contained the outbreak such as Thailand and Vietnam will see a stronger recovery than Indonesia and the Philippines, which are battling new waves of Covid-19 outbreak after restrictions were prematurely relaxed.

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The report noted that both Indonesia and the Philippines remain highly vulnerable as they have weaker public health infrastructure, lower levels of fiscal support available, and are much more consumer driven than others in the region. 

The pace of recovery in Indonesia is expected to be slow and household income will be squeezed. GDP is expected to contract 2.7 per cent in 2020 before a 6.2 per cent expansion in 2021. The Philippines is set to record the largest contraction in Southeast Asia, with its GDP falling 8.2 per cent in 2020, because of its dependence on international tourism and a slow exit from lockdown.

 Malaysia’s exports meanwhile are predicted to benefit from improving Chinese import demand and the electronics cycle. Nonetheless, the speed of its recovery will likely slow given the current sluggish global demand, high unemployment and weak investment, and its economy is forecast to shrink by 6 per cent this year, followed by growth of 6.6 per cent in 2021.