Being one of the regions close to China, Southeast Asia was one of the first regions to get affected with the novel coronavirus. Since then, business activities in the region have been limited by lockdowns and other measures put in place by governments to limit the spread of the virus. Most of the measures continued for three months, from March to June. As a consequence, it is expected that the ASEAN economies will sink deep into minus growth. The 2020 economic growth forecasts for the region from the Asian Development Bank, World Bank and IMF all indicate a sharp decline as a result of the economic hurdles of the pandemic.
The World Bank report released in April projected the 2020 economic growth for major ASEAN economies to range between -0.5 % and -5% depending on the success levels of the countries’ coronavirus control measures. The +1.5% projected growth for Vietnam economy is the only positive growth forecast in the report. IMF, on the other hand, projects a -2% growth for the ASEAN-5 in its June outlook. compared to -0.6% in April.
The Asian Development Bank (ADB) in the June forcast expects Southeast Asian economy to contract by 2.7% in 2020.
What factors are weighing on the ASEAN economies?
The impact of the coronavirus pandemic is hitting ASEAN member states through several different channels. Firstly, the IMF June forecast expects global economy to contract by 4.9% in 2020 — which is worse than the Great Depression. ASEAN countries have varying trade and investment partnerships with other major economies like China, US and The European Union as well as among themselves. The effects of the sudden shutdown are all over the world with Asia’s key trading partners like the USA and Europe also expected to experience a sharp drop in their growth.
Secondly, these leading economies in the region are highly dependent on trade and investment, which have also been highly disrupted by the coronavirus pandemic. The demand for manufactured components from the richer economies in the region as well as the products of the labour-intensive textiles industries of the developing ASEAN economies has fallen sharply.
Industrialised economies like Singapore had already experienced a decline in trade volumes as a result of the China-U.S trade conflicts last year and is now experiencing another decline due to coronavirus. The continuing strained trade relations between the USA and China, which have been rekindled by the Hong Kong Security Law, has further implications for Asia. The impact is also huge in economies that depend on the export of fuel like Malaysia and Indonesia. Worldwide lockdowns and travel bans caused a sudden drop in the global energy consumptions, thus negatively affecting oil prices.
In the Philippines, cash remittances from the overseas workers dropped by 16.2% in April due to the global economic slowdown and the mass return of foreign workers home. In 2019, remittances accounted for close to 9% of the country’s GDP, meaning it is an important source of income for a huge percentage of Filipino families. The trend is expected to continue to the second quarter as economies experience recession and high unemployment rates.
The global suspension of international tourism has hit the Thailand economy hard, which hugely depend on tourism and travel.
Will stimulus packages help?
Most of the ASEAN member states have introduced stimulus packages and are mobilising both monetary and fiscal measures to avoid economic catastrophe. A majority of the countries employed measures such as increasing their government spending, lowering the required reserve ratio for banks, and cutting their benchmark interest rates and many more.
Rich ASEAN countries are planning to implement large stimulus packages to save their economies from recession. Singapore stimulus package was the highest with a total of US$80 billion (a fifth of the country’s GDP) followed by Thailand’s package worth US$64 billion (16% of the GDP). Malaysia will be spending US$60 billion, which is 17% of its GDP. All the other countries also have spending plans, but may not have the capability to allocate such huge amounts.
There is also an increase in cooperation at the regional level in mitigating the economic impact of the virus. In early March 2020, the 26th ASEAN Economic Ministers retreat issued a statement calling for more collaboration in the fighting the negative impacts of the coronavirus pandemic. The statement advocated for the use of technology and digital trade as well as the facilitation of platforms to promote supply chain connectivity and sustainability. Leaders attending the ASEAN Summit on Covid-19 also called for a post-pandemic recovery plan and proposed the establishment of the Covid-19 ASEAN Response fund.