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ASEAN's 2021 GDP forecasts show cautious optimism in COVID shadow

Vaccinations key as Singapore sticks to 4-6% outlook but Thailand lowers sights

Workers put up Lunar New Year decorations in Singapore on Feb. 8: The city-state is counting on an economic rebound this year.   © Reuters

SINGAPORE -- Southeast Asian economies this year are broadly aiming to regain the growth momentum they had before the COVID-19 pandemic triggered historic declines in 2020. A look at early forecasts around the region, however, shows a wide range of scenarios as risks continue to lurk.

Singapore on Monday maintained its forecast of gross domestic product growth of 4% to 6% for 2021, unchanged from its estimate in November. The city-state is coming off a record 5.4% annual contraction, based on a revised 2.4% decline in the fourth quarter of 2020 -- an improvement from the preliminary 3.8% quarterly fall announced in January.

Singapore has the coronavirus largely under control and aims to vaccinate all adults by September. A recent uptick in electronics exports is another positive sign, though prolonged travel restrictions are weighing on the hub economy.

"As the positive developments in the key external economies broadly offset the negative ones, Singapore's external demand outlook remains largely similar compared to three months ago," the government said in a statement on Monday.

Singapore's outlook is in many ways a microcosm of a region. While consumer goods exports are a bright spot, successful vaccine rollouts are crucial for reviving economic activity including tourism -- a core industry for many Southeast Asian countries.

Among policymakers and analysts around the region, optimism is mixed with caution over pitfalls.

Indonesia expects GDP to grow between 4.5% and 5.5% this year, after a 2.1% contraction in 2020. In January the country began a massive vaccination campaign that aims to inoculate 181 million people -- 70% of its total population -- by March 2022. This promises to help boost domestic demand in a country that has logged about 1.2 million COVID-19 cases, the most in the region.

Similarly, the Philippines projects a growth range of 6.5% to 7.5% for this year, versus a 9.5% drop in 2020, as the economy reopens further and vaccinations begin.

Vaccination campaigns pose logistical hurdles, however, especially in a vast archipelago country like Indonesia. Efficacy rates may also differ depending on which shots are used. Singapore's United Overseas Bank noted that Indonesia's 2021 GDP growth could be limited to 2% in a pessimistic scenario where vaccine efficacy is 50% and population coverage is 35%.

Thailand on Monday lowered its sights, revising its 2021 forecast down to 2.5% to 3.5% growth, versus a 3.5% to 4.5% projection in November. The global tourism drought is especially painful for the normally popular resort destination.

Thailand's tourism sector is expected to recover in the fourth quarter of 2021, according to Danucha Pichayanan, secretary-general of the Office of the National Economic and Social Development Council. He also said the kingdom's growth depends on the efficacy of coronavirus vaccines, adding that political stability is vital for attracting foreign investment.

In Malaysia, which remains under a state of emergency, the central bank did not reveal a 2021 growth projection when it announced last week that GDP shrank 5.6% in 2020. That was the worst performance since the Asian financial crisis days in 1998.

"Going into 2021, growth will rebound, supported by a pickup in global demand and normalization in domestic economic activities," Bank Negara Malaysia noted in its presentation last Thursday. But it added, "Downside risks to growth remain, with the pace and strength of recovery subject to developments surrounding the COVID-19 pandemic globally and domestically."

Southeast Asia's growth leader in 2021 may well be Vietnam. The country managed 2.9% economic expansion last year thanks to its success in containing the virus -- it has reported only about 2,100 cases -- along with robust exports of electronics and other consumer products. Hanoi is reportedly targeting a 6.5% growth rate this year.

"[Vietnam's] exports should continue to be supported by U.S. tariffs on Chinese goods," Gareth Leather, senior Asia economist at Capital Economics, wrote in a recent report. "To avoid U.S. tariffs, importers have shifted demand from China to alternative suppliers. With U.S.-China relations likely to remain strained over the years ahead, this trend is likely to continue."

Before the pandemic, Southeast Asia had achieved collective annual growth of about 5% for many years -- making it one of the world's best-performing regions. It became an attractive investment destination, with a relatively young population driving demand and providing plenty of manufacturing labor. Those advantages remain in play, but first the region needs to stamp out COVID-19.

Additional reporting by Masayuki Yuda.

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