Covid-19 lockdowns weigh on South-east Asia's economic outlook

In April, Indonesia's central bank trimmed its growth forecast to 5.1 per cent.
In April, Indonesia's central bank trimmed its growth forecast to 5.1 per cent.PHOTO: AFP

JAKARTA - South-east Asia's economies will struggle against Covid-19 lockdowns this year even as early signs suggest a recovery for the region, helped by big dollops of foreign direct investment (FDI) and, for some, breakneck growth in exports to the United States and China.

On Tuesday (May 11), Malaysia's central bank said its economy may grow by as fast as 7.5 per cent this year even as the country prepares for a three-week lockdown starting on Wednesday.

In the Philippines, where officials in the country's capital have banned all non-essential movement, as well as indoor dining and gatherings, the government talked up the country's potential to return to a rapid rate of growth, helped by government spending and an eventual end to lockdowns.

"The country's strong economic position before the pandemic and improving economic data in recent months point to an economy that is on the mend," said Mr Karl Chua, the Philippines Economic Planning Secretary, according to media reports.

But analysts warn that the region's economies are vulnerable, owing to the slow roll-out of Covid-19 vaccines and future spikes in infections caused by the arrival of variants from neighbouring India as well as growing public apathy.

"The close proximity to India, the new epicentre for the pandemic, raises the concern for a renewed wave for South-east Asian economies," Ms Alicia Garcia-Herrero, chief economist for the Asia-Pacific at French investment bank Natixis, told The Straits Times.

"This could force governments to reimpose lockdown measures, which have already happened in Thailand and the Philippines, and delay the recovery of domestic demand and border reopenings as well.

Education Minister Lawrence Wong, who co-chairs Singapore's multi-ministry task force tackling Covid-19, said Singapore was on a knife-edge, with community cases poised to surge unless residents abide by the latest round of restrictions. Singapore has identified 11 Covid-19 clusters.

In Bangkok, municipal authorities extended until Sunday lockdowns that have shuttered schools, parks and entertainment venues.

The lockdowns belie what had appeared, just a few weeks ago, to be signs of a turnaround helped by an uptick in investment and exports.

In Vietnam, buoyed by an influx of FDI and exports, the country's GDP grew 4.5 per cent during the first three months of 2021 while exports jumped nearly a fifth, according to government data in March.

At furniture and car-seat maker Xuan Hoa outside of Hanoi, whose customers include Ikea and Toyota, the company expects revenue to jump by a quarter this year as it racks up sales from customers eager to diversify purchasing away from China which still faces steep tariffs in the US.

"Many of our customers are partially or fully moving out from China," said Mr Le Duy Anh, the firm's general director told ST.

"Business is good because the pandemic is in check and exports are expanding."

In Indonesia, exports soared by 31 per cent during the first quarter compared with the same period a year ago. Realised foreign direct investment soared 14 per cent to US$7.7 billion (S$10.2 billion).

Even so, GDP shrank a second successive quarter during the first three months of the year - down 0.7 per cent in the first quarter after a 2.1 per cent drop at the end of 2020.

Malaysia's economy also shrank for a second successive quarter during the first three months of the year, slipping 0.5 per cent compared with a year ago. The Philippines halved the rate of contraction of its GDP to 4.2 per cent year on year during the quarter.

Last month, Indonesia's central bank trimmed its growth forecast to 5.1 per cent. While data for the rest of 2021 will look good compared with the dire state of the economy a year ago, Ms Tamara Henderson, Asean Economist for Bloomberg Economics, reckons a more reasonable forecast for South-east Asia's biggest economy is closer to 3.5 per cent, owing in part to the slow pace of vaccinations, she said.

So far, Indonesian authorities have administered 22 million doses of vaccine - equivalent to fully inoculating 5.5 per cent of its adult population.

"I'm not as optimistic as others on Indonesia's growth prospects, seeing fierce headwinds from more infectious mutations of the coronavirus alongside a relatively slow pace of inoculation," Ms Henderson told ST.

"The recent jump in Singapore's virus cases is a warning -not just for Indonesia - that virus curbs will need to remain in place for longer and at tighter levels."