top of page
Search

The Economic Impact of the COVID-19 Pandemic on Southeast Asia

Just as COVID-19 swept across Southeast Asia in three primary waves, so too has the macroeconomic impact of the pandemic and the region’s subsequent recovery unfolded in three phases. The first phase began in early 2020, when most economies plunged into recession as borders and economies shut, tourism died, supply chains struggled, and global demand tanked


The second phase began at the start of 2021 when a tentative recovery was threatened by a devastating Delta wave, as Richard Maude wrote at the time for this project. Regional recovery strengthened throughout 2022, despite yet another COVID wave, this time driven by the Omicron variant.


The region has now entered a third phase, one in which governments are having to navigate a sharply deteriorating global economic outlook marked by inflation, energy and food price shocks from the war in Ukraine, and lower growth in China. These factors will dampen, but likely not arrest, economic growth in the region.


In countries where agriculture still plays a large role in the economy, which is the case in Myanmar, Laos, and Cambodia, the hit to GDP was less pronounced. Myanmar’s marked GDP drop in 2021, meanwhile, was predominantly due to the 1 February 2021 coup, rather than an effect of the pandemic.


Diversified economies, such as those in Singapore, Indonesia, and Vietnam, proved to be more pandemic resistant thanks to increased global demand for key exports and heightened prices of some commodities.


Globally, trade in several products (e.g., fuel, vehicles, steel) nosedived, while others (e.g., pharmaceutical products, food, and electronic goods) increased. Singapore and Thailand’s goods exports grew on the back of pharmaceuticals (by April 2020, Singapore’s exports saw a 170 percent increase) and food (Thailand’s rice exports grew by nearly a quarter in early 2020).


Demand for oil and gas, on the other hand, ground to a halt due a reduction in travel and the oil price reached its lowest levels in two decades. Indonesia, where petroleum and natural gas make up the largest export products (in dollar value), saw the loss of a quarter of its export value in these commodities. Price increases for copper and palm oil compensated some of this loss.


As working, entertaining, and shopping from home became the norm from mid-2020, demand for computers and TV sets surged, particularly across the United States and Europe. This was good news for electronics producers in the region, where electronic goods and components are the largest export product (in dollar value). ASEAN-wide export values increased nearly 30 percent from 2019 to 2021 (see Table 3), a trend that continued in 2022.


Recovery

In late 2022, the world’s economic outlook is increasingly “gloomy and uncertain”, as the IMF stated so pessimistically. High inflation and low growth have some fearing that we are entering a prolonged period of stagflation as many countries across the world are tightening fiscal and monetary policies – albeit unevenly.


While inflation in the region is mostly at lower levels than elsewhere, including the United States and much of Europe, price increases, particularly in Myanmar and Laos as well as Thailand, are putting added pressure on the millions of people who live in extreme poverty, many of whom fell below the poverty line during to the pandemic.


This is the difficult global economic situation in which Southeast Asia tries to navigate its recovery. At the same time, debt-to-GDP in Southeast Asia grew from 49 percent in 2019 to 63 percent in 2021 (and as high as 94 percent in Laos), partly due to countries across the region allocating an average of 7.7 percent of their GDP to fiscal stimulus just as the economy contracted.


In addition to the direct effects of the pandemic, economies are facing ageing populations – even if at lower levels compared to elsewhere in Asia – and a slowdown of the forces of globalisation, which have fuelled much of the region’s growth over the past decades. Long-term post-pandemic recovery that lifts the region past the “middle-income trap” requires the region to implement institutional reform led by ambitious governments.


Since the start of 2022, economic recovery in the region has been led by several sectors: agriculture, which has benefited from workers who lost their jobs in tourism; construction, which has started to work on a huge backlog of infrastructure projects; and manufacturing, which is responding to strong external demand.


The boom in the digital sector continues to be another driver of post-pandemic recovery. Southeast Asia has emerged as one of the world’s biggest e-commerce growth opportunities, with over 70 million new online shoppers since the beginning of the pandemic. Growth is particularly strong in the Philippines, Indonesia, and Vietnam. Interestingly, while e-commerce sales have steadily increased since 2018, the pandemic doesn’t appear to have a big impact on its growth, with the proportion of year-on-year growth decreasing since 2019.

VIEW ARTICLE

#trade #globaltrade #fdi #investment #economy #economicdevelopment #policy #government #foreigninvestment #asia #asiapacific #asean #investment #development

12 views0 comments

Recent Posts

See All

Asia is the up-and-coming destination for business and investment. The past half-century has been a turning point for much of Asia in which it has performed a complete 180-degree shift and emerged as

bottom of page