Asean-5 to see 5% growth in 2021, 5.7% in 2022: Citi

THE Asean-5 economies should see gross domestic product (GDP) rebound 5 per cent in 2021 - with most economies except the Philippines returning to pre-Covid levels by the end of that year - and 5.7 per cent in 2022, Citi economists said in their Asean 2021 Prospects report.

Output gaps, however, are only expected to close from 2022.

In the first half of 2021, low-base effects may boost year-on-year figures, but sequential momentum may slow on domestic and external headwinds.

In the second half, recovery catalysts such as vaccine deployments and supply chain shifts will strengthen into 2022.

"If our forecasts pan out, Asean would see a significantly faster recovery to pre-crisis levels of output with the Asian Financial Crisis (8 quarters vs 13 quarters), though twice as long as the Global Financial Crisis, reflecting both a deeper contraction and stronger scarring effects vs the latter," they said.

Vietnam is expected to see the fastest recovery, followed by Indonesia and Malaysia by mid-2021, on the back of vaccine rollouts and supply chain shifts.

Singapore and Thailand are expected to take longer, recovering by Q4 2021, due to continued border closures and "relatively smaller policy support". The Philippines may only recover in Q2 2022, "given lack of strong catalysts".

On the consumer front, recovery may stall as job markets remain weak. Only Vietnam has seen retail trade recover above pre-Covid levels so far.

There is also a danger of permanent job losses, arising from "structural labour market scarring" in the worst-hit services sectors such as transport and tourism.

Except for Vietnam, unemployment rates are unlikely to return to pre-Covid levels in the next two years, said the report.

For external demand, renewed waves of infection in trading partners such as Europe and the United States pose near-term downside risks.

Final demand from the 28 European Union economies and the United Kingdom accounts, on average, for around 4 per cent of Asean's GDP, with Singapore and Vietnam the most exposed at 11 per cent and 6 per cent of GDP respectively. Final demand from the US accounts for 5 per cent on average.

Demand from China may not offset this entirely, given limited exposure to discretionary Chinese consumption and slowing semiconductor demand in the near term.

On the bright side, new infection waves - and corresponding lockdown measures - are likely to cause less damage in the future, as countries are now better prepared.

"An obvious game changer for 2021 would be the pace of vaccine rollout, though the pace varies across individual Asean economies," said the report.

The analysts see Singapore, Indonesia, and Malaysia as on track to meet their vaccination targets of all, half, and 30 per cent of the population respectively. Vietnam is not prioritising vaccine containment, but its proven containment strategy will help mitigate the risk of further infections, they added.

Meanwhile, supply chain shifts into Asean - which accelerated during 2020 - are set to continue, with Indonesia as a notable new beneficiary. This will be encouraged by the Regional Comprehensive Economic Partnership and domestic reforms that reduce barriers to foreign direct investment, including Indonesia's omnibus law in October.

An earlier-expected 2021 rise in machinery and equipment capital expenditure, however, is now more likely towards end-2021 or early-2022 instead.

Macroeconomic policy is expected to remain broadly expansionary, with incremental stimulus skewed towards fiscal stimulus and monetary policy remaining accommodative but largely on hold.