ICAEW: Covid-19 Immunity Key to South-East Asia’s Economic Recovery From Delta Variant 

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DigitalCFO Newsroom | 22 September 2021

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 this year, especially for countries with low levels of Covid-19 immunity. The economies of several countries are expected to have contracted in the third quarter of this year, but the outlook for the region in 2022 is more positive, according to the latest Global Economic Forecast Report from ICAEW and Oxford Economics.

The Global Economic Forecast Report 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.

Asian economies have experienced varying degrees of success in containing the Delta variant, because of differing rates of vaccination and social distancing restrictions. On one end of the spectrum, significant waves of infections in Vietnam, Malaysia, Philippines, and Thailand in the last quarter mean those countries face a delayed recovery in 2021, according to the report, but they should see a significant rebound in 2022, once vaccination rates are higher and lockdowns are lifted.

On the other end, Singapore, Hong Kong, and China have recorded much lower cases. Despite some fallout from the Delta variant, which has resulted in tighter restrictions in the third quarter of this year (Q3), the outlook for 2022 for these economies is robust, because of high vaccination rates and successful use of targeted restrictions.

GDP in Singapore is projected to grow by 6.4% this year, similar to the forecast in ICAEW’s last report, with further easing of Covid-related restrictions over the coming quarters likely given that over 80% of the population is now fully vaccinated. Although the pace of reopening will remain gradual given the government’s cautious approach to the pandemic, momentum is expected to rise in the second half of 2021 as restrictions ease. With pent-up demand supporting growth in the coming quarters, Singapore’s GDP is forecast to grow at a solid pace of 4.1% in 2022.

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.

Mark Billington, ICAEW Managing Director International, 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.”

The global picture

Across the world, many economies saw a weak start to the year, with rising infections and tighter restrictions putting a drag on activities in Q1 before picking up in Q2, as vaccination programs were implemented. Global GDP grew by 1.4% in Q2 2021, exceeding the rate of growth seen in the 15 years prior to the Covid-19 pandemic, including the pace of recovery seen after the Global Financial Crisis of 2008. However, there are signs that momentum may be faltering, driven by tighter restrictions and concerns about the Delta variant, as well as supply chain disruptions that are affecting key sectors such as manufacturing. Overall, ICAEW’s Global Economic Forecast Report expects the global economy to expand by around 5.8% in 2021 and 4.7% in 2022.

At an International Economic Forum hosted by ICAEW on 14 September 2021, industry leaders and experts discussed the economic outlook for China, South-East Asia, and the Middle East, with a focus on the impact of the Delta variant and how countries can create growth through more greener economies. The post Covid-19 era will be dominated by climate change and recovering from the pandemic presents an opportunity for businesses to build back in a more strong and sustainable way for a better future.

Michael Izza, ICAEW Chief Executive, officiated the event with a speech on the opportunities for economies to pivot being more sustainable as they emerge from the pandemic. This was followed by a presentation of key findings from ICAEW’s latest economic forecast from Scott Livermore, Chief Economist and Managing Director at Oxford Economics Middle East. He was joined by panellists Danae Kyriakopoulou, Senior Policy Fellow, London School of Economics; Lee Bing Yi CA, Sustainability and Climate Change Director, PwC Singapore; Rohit Rajvanshi FCA, Partner, KPMG UAE and ICAEW Member for Middle East in an insightful discussion on how companies can contribute towards sustainable economies.

Other findings from the Global Economic Forecast Report include:

  • Displacements in global inventory will disrupt the region’s manufacturing sector

On a global level, varying degrees of lockdowns and success with easing restrictions in different countries have contributed to uneven return-to-work patterns and negatively impacted global supply chains. Firms worldwide have reported holding significantly fewer numbers of inventory units than they would usually expect. These supply constraints will remain an issue in the short-term, and sluggish production will lead to increased costs and inflationary pressure that will have a ripple effect on South-East Asia’s recovery.

  • Technological innovations and public investments are crucial to a green economy

The economic cost of inaction around climate change is significant. For SEA economies that are more dependent on agriculture and livestock farming industries, slower progress in introducing renewable energy could prove to be a real challenge to their GDP growth in the long term.

On the other hand, there are plenty of opportunities in being an early mover on green technology. China and the SEA region are both in prime spots to chart a green recovery for the economy as leaders in Research and Development and technological innovation. Coupled with low debt levels, this gives an opportunity to build back greener if countries invest in clean energy transition and harness public and private partnerships to create change. They can do this by setting clear policy goals and providing guidance to business on integrating sustainable strategies within their organisations and benchmarking their progress with a common set of reporting frameworks.

View the on-demand recording of the ICAEW International Economic Forum Q3 2021 here.