The spread of the highly contagious Delta variant of COVID-19 has cast a shadow on South-East Asia (SEA) and limited economic recovery for the region in 2021, especially for countries with low levels of Covid-19 immunity. According to the latest Global Economic Forecast Report from The Institute of Chartered Accountants in England and Wales (ICAEW) and global advisory firm Oxford Economics, Malaysia’s GDP growth is forecasted at 3.6% for 2021, but expected to significantly improve to 6.7% in 2022. Overall, the ICAEW’s report expects the global economy to expand by around 5.8% in 2021 and 4.7% in 2022.
Until recently, Malaysia has lagged neighbouring countries such as Singapore in terms of vaccinations. And with one of the highest daily infections per 1 million in the region, Malaysia tightened restrictions sharply from May 2021, which led to a substantial decline in household spending and investment in Q2 with GDP contracting 2% in the quarter.
“We expect that tighter restrictions imposed by the Malaysian government in Q3 2021 will result in the economy dipping temporarily into a technical recession with consumer spending and services particularly hard hit. More positively, Malaysia is making good progress on its vaccination programme, with around 80% of adult population now fully vaccinated. This has seen more economic sectors across the nation to reopen since early September,” said Scott Livermore, chief economist and managing director at Oxford Economics Middle East.
“The imminent reopening of interstate travel and domestic tourism should augur well for Malaysia’s economic recovery in Q4 and into 2022 as activity becomes more synchronised across services and industrial sectors. That said, the recovery is still subject to downside risks from the pandemic,” he told BizTech Times.
Mark Billington, managing director International at ICAEW said: “The Covid-19 Delta variant has derailed the recovery process for most South-East Asian economies and the reality of living with Covid-19 as endemic is proving to be complex. Not only do governments have to implement appropriate restrictions and measures to curb the spread of the variant, but they also need to speed up their vaccination rollouts to achieve immunity, in order to improve their prospects for growth.”
According to the Global Economic Forecast Report, GDP in Singapore is projected to grow by 6.4% this year with further easing of Covid-related restrictions over the coming quarters likely given that over 80% of the population is now fully vaccinated. However, recovery prospects remain dim in the short-term for countries such as Vietnam, Philippines, and Thailand, which continue to battle against the spread of the virus.
Heavily export-oriented economies like Vietnam remain dependent on the recovery of the manufacturing sector. Nonetheless, Vietnam’s GDP is projected to grow by 5.4% (revised down from 7.6% in ICAEW’s last report) in 2021, before accelerating to 7.5% in 2022. The pick-up in growth will be driven by restrictions easing and industrial recovery gaining traction around mid-2022.
The report also predicts that economies with low immunity levels face the greatest risks moving forward. As the Delta variant triggers a renewed surge in Covid-19 cases, certain countries remain vulnerable to its impact, due to having slower vaccination rollouts and higher exposure to global supply chain disruption.
“Asia’s economic performance over the next six to nine months will continue to be hugely influenced by developments in the pandemic. Many Asean economies are shifting towards treating the virus as endemic but progress on vaccinations remain key. Outside of Malaysia and Singapore, the rest in the region are still lagging behind,” said Livermore.
He expects Indonesia, Thailand, and the Philippines to achieve a level of vaccination that should greatly reduce the need for restrictions on mobility or activity by mid next year. “This offers hope of a very strong second half in 2022 and a restart of large-scale tourism. But there’s also the risk that growth could be disrupted in the intervening quarters, depending on pandemic developments,” concluded Livermore.
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