Measuring the impact of Covid-19 on economic growth in ASEAN

The COVID-19 pandemic has prompted governments of ASEAN countries and the rest of the world to take extraordinary measures to contain the virus and save lives, including lockdowns and social distancing measures.

Several weeks of strict lockdowns or the combined effect of the COVID-19 outbreak and the social distancing measures have triggered an economic recession. But which ASEAN economies have been severely hit by COVID-19?

The impact of COVID-19 on economic growth is measured by the difference of estimated 2020-2021 growth rates in real gross domestic product (GDP) before and during the pandemic. Such data are obtained from the International Monetary Fund (IMF), which projected growth rates of economies in October 2019 (before the pandemic) and October 2020 (during the pandemic). 

The difference of estimated growth rates reveals that the pandemic has reduced the average growth rate of ASEAN-10 economies by 7.8 percentage points in 2020. 

The worst affected economies are the Philippines (-14.4 percentage points), Malaysia (-10.4 percentage points) and Thailand (-10.2 percentage points). The moderately affected economies are Cambodia (-9.5 percentage points), Singapore (-7.0 percentage points), Indonesia (-6.6 percentage points), and Laos (-6.3 percentage points). The least affected economies are Vietnam (-4.9 percentage points), Brunei (-4.6 percentage points) and Myanmar (-4.3 percentage points).

The IMF’s projected economic growth rate in ASEAN in 2020 varies across countries, ranging from -8.3 percent in the Philippines to 2.0 percent in Myanmar. The recession in the Philippines is significantly deeper than that in Indonesia (1.5 percent).

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Unlike the Philippines, Indonesia was less aggressive in pursuing social distancing measures and lower dependent on international demand for goods and services. The negative growth is also found in Thailand, Singapore, Malaysia and Cambodia.

In contrast, Brunei, Laos and Vietnam would record a positive growth in 2020.

The actual growth figures for the first three quarters of 2020 also confirm the IMF’s projections of economic growth in ASEAN.

An analysis of CEIC’s real GDP growth reveals that five out of seven ASEAN economies recorded a negative double-digit growth rate in the second quarter of 2020 compared to the same quarter in 2019. They are Malaysia (-20.4 percent), Singapore (-16.3 percent), the Philippines (-14.3 percent), Thailand (-13.1 percent) and Indonesia (-10.0 percent). These countries recorded a negative single-digit growth rate in the third quarter, suggesting the reopening of some economic activities. 

An analysis of CEIC’s real GDP growth also reveals that the economies of Brunei and Vietnam contracted by 0.8 percent and 0.5 percent, respectively, in the second quarter of 2020. Unlike other large economies in ASEAN, Vietnam recorded a positive growth at 2.2 percent in the third quarter, suggesting a strong recovery after the containment measures have been eased.

The quarterly growth figures for Cambodia, Laos and Myanmar are not available, but their economies are expected to contract in the second and third quarters of 2020 due to economic shutdowns, social distancing, travel restriction and slowdown in international demand for goods and services.

On the demand side, economic growth in ASEAN was pulled down by shrinking private consumption and investment. An analysis of CEIC’s quarterly GDP growth reveals that private consumption was hardest hit in Malaysia and Singapore. In Malaysia, the contribution of private consumption to GDP growth dropped from 3.2 percent in the first quarter to -13.1 percent in the second quarter of 2020. In Singapore, the contribution of private consumption to GDP growth fell from -1.5 percent to -11.4 percent in the same period. The fall in private consumption could be caused by declining incomes, mobility restrictions and an increase in precautionary savings due to increase in uncertainty.

On the supply side, economic growth in ASEAN was pulled down by the decline of outputs in services and industry (mostly manufacturing). The services sector was hardest hit in Singapore and Thailand, reflecting the relatively high share of services exports in their GDPs. Outputs in both services and industry were significantly reduced in Indonesia, Malaysia and the Philippines. 

At present, real GDP growth in ASEAN is expected to hit the bottom in the second quarter of 2020 and would improve in the rest of 2020 and 2021. However, the revival of economic activities in 2021 can be interrupted by the on-going spread of COVID-19 in Indonesia and the Philippines, and most recently in Myanmar, Malaysia and Thailand.

In addition, major economies such as the United States, India, United Kingdom, France, Germany and Japan are still facing the rising number of daily COVID-19 infections and deaths.

Their economic slowdowns could reduce global demand for goods and services from ASEAN countries, especially Singapore, Vietnam, Cambodia, Malaysia, Thailand and Brunei, which could reduce the strength of ASEAN’s economic recovery in 2021.

The writer is lead researcher (economic affairs) at the ASEAN Studies Centre, ISEAS - Yusof Ishak Institute, Singapore