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COVID-19 derails recovery in ASEAN economies

Oliver Dancel-Fiszer
Oliver Dancel-Fiszer
Head of Economic Content, Refinitiv

The COVID-19 Delta variant has hit ASEAN economies hard, slashing growth rates and stalling the recovery. We analyse how the economies can remedy the fallout caused by the Delta variant and look at the important investment areas that could flourish in the future.

  1. Pre-COVID-19, ASEAN economies were forecast to have some of the highest growth rates in the world over the next five years.
  2. Prior to the Delta variant, ASEAN’s low cases and death rates were largely the envy of the world. Now the region is experiencing substantially higher rates of COVID-19 which threaten to put a dent in their recovery and growth.
  3. How can ASEAN economies get back on track? And what are some of the more positive developments that suggest ASEAN could be one of the greatest growth and investment hotspots once the pandemic has been more fully contained?

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Life was looking exceptionally rosy for many of the ASEAN nations.

Prior to the pandemic, organisations such as the IMF and OECD had forecast many of the ASEAN economies would have some of the highest growth rates in the world. At an average of 5 percent growth per annum, this was well in excess of some of the more developed economies of Europe and North America.

Even several months into the pandemic, many praised the ASEAN model for its resilience in containing the first and second waves.

Thailand, a major densely populated country, regularly registered single digit cases for months on end. Vietnam also bucked the global trend to be one of the few countries which had positive economic growth in 2020 on the back of a prompt and highly successful public health response.

Then Delta happened.

Datastream – a historical financial database with over 35 million individual instruments or indicators across all major asset classes, including 8.5 million active economic indicators

Not even ASEAN economies are immune from Delta

The ASEAN economies are hardly the only sufferers of a COVID-19 variant that is sweeping the world with such magnifying force. However, what is extraordinary is how quickly the pendulum has swung late into 2021.

If we look at the average new case count between April and September 2020, we see remarkably low cases, with Malaysia averaging 47, Thailand averaging 10, and Vietnam only five.

Fast forward to the same period in 2021 and these daily figures are closer to 10k for Thailand and Malaysia alone. Even the Philippines and Indonesia, who started with comparatively higher cases in 2020, have between five and ten times the number of daily cases in 2021.

So why the sudden rise? Several factors are at play here but lockdown fatigue, social distancing complacency and more importantly a distinctly low level of vaccinated people are cited as the main causes of this rise.

At the time of publication, the more populous countries of Indonesia, Thailand, Malaysia, Philippines and Vietnam all currently have fewer than 15 percent of their population fully vaccinated.

A higher rate of vaccination among the population should help to lower the most adverse effects of COVID-19 and restart those growth levels that the region was on track to achieve pre-pandemic.

What about the unintended benefits of the pandemic?

While cases have gone up, the shift to and success of remote working has undoubtably come with some benefits.

For starters, we are likely to see more higher knowledge job creation where large multinational companies can switch to lower labour cost bases in several ASEAN countries. There is also likely to be less house price pressure on city residential properties, which was a huge issue for cities globally pre-pandemic.

And let’s not forget the air is likely to be cleaner too as companies continue to embrace hybrid models of office and home working.

Tourism is also likely to shift with a rebalancing towards domestic tourism leading the charge.

We can expect tourism to become more sustainable as governments instead look to promote higher-yielding environmentally sustainable tourism rather than the free-for-all tourism we had seen in places such as Thailand.

What else can the ASEAN region do to spearhead growth?

At Refinitiv, we believe there are four major factors that suggest ASEAN could become one of the fastest-growing regions and potential investment hotspots as we emerge from the pandemic.

Labour productivity and wage growth – these are key ingredients for growth and the International Labour Organisation suggests that real wages and productivity have grown much faster in ASEAN than many developed countries worldwide over the last 10 years.

For example, Vietnam, Laos, Cambodia and Indonesia have all averaged well in excess of 4 percent annualised productivity growth – this compares with only 1 percent in Australia.

Financial innovation and interconnectedness – both traditional finance and emerging financial models are key here.

In terms of the latter, a recent report by Chainalysis places Vietnam as first globally for cryptocurrency adoption, as well as Thailand (12th) and the Philippines (15th) both entering the top 20 in 2021.

The rise of online and digital-only banking will continue to undercut incumbents and make financial services more accessible to a growing number of people.

ESG and green bond investingwhile still in its infancy, ESG and green bond investing is likely to expand significantly, with many citing the opportunities for ASEAN to become world leaders in this area.

Support for green Infrastructure projects will likely increase as a way of driving a sustainable recovery from the pandemic.

This is consistent with other regions – our LSE Green Economy Report illustrates that issuers who possess our Green Economy Mark have vastly outperformed global benchmarks in terms of share price growth over five years (131 percent) vs S&P (109 percent) and STOXX Europe Indices (42 percent).

Trade – the world will be watching for signs of success of the Regional Comprehensive Economic Partnership (RCEP) – indeed the ADB forecast that Malaysia, Brunei, Thailand and Vietnam would all accrue gains of at least 0.5 percent in GDP per annum as a result of the RCEP.

The UK in particular is keen on a trade deal with more ASEAN countries as a result of leaving the EU at the end of 2020.

In our upcoming ASEAN webinar scheduled for 23 September, we will be talking with experts to discuss prospects for the region and how its countries can still achieve those growth forecasts as the world starts to emerge from the pandemic.

Datastream – a historical financial database with over 35 million individual instruments or indicators across all major asset classes, including 8.5 million active economic indicators