SINGAPORE (S&P Global Ratings) Aug. 19, 2021--Emerging Southeast Asian economies are facing intense headwinds from persistent COVID-19 pandemic waves, S&P Global Ratings said today. The duration and severity of the pandemic has been more adverse than our previous baseline expectations. As a result, we are revising downward our 2021 growth expectations for a number of emerging Southeast Asia economies.
Private consumption and services will be hit hardest by the pandemic. While the new lockdowns this year have been less costly as economies adapted to reduced mobility, the longer durations have meant that the economic costs are rising. Meanwhile, external demand will provide a buffer against further outlook deterioration. International trade remains strong due to healthy demand for goods as global economies open up.
"A fresh slump in demand in emerging Southeast Asia is hitting sectors that have already faced a challenging year," said Vishrut Rana, Asia-Pacific economist at S&P Global Ratings. "As the pandemic drags on, balance sheets will deteriorate for households, small and midsize enterprises, banks, and the wider economy, leading to more medium-run economic scarring."
Policy settings across the region are likely to remain steady. Central banks are wary of easing further. The U.S. Federal Reserve's next policy change is likely to be tapering of quantitative easing, and policy easing from the Southeast Asian central banks could increase capital outflows in the region. The central banks are already deploying a range of tools, including loan moratoriums and acquisition of public securities. Meanwhile, core inflation and broader inflationary pressures are subdued amid weakening domestic demand; so central banks are unlikely to tighten policy further.
New fiscal stimulus measures announced this year in Southeast Asian economies have been more limited in scope, given that the fiscal policy space was significantly eroded during the initial pandemic escalation in 2020. Overall public spending is still set to support growth during the year based on previously announced measures and government budgets for the year.
Forecast Revisions
We have revised our 2021 growth forecast for Thailand lower to 1.1%, from our June forecast of 2.8%. The current COVID-19 escalation in Thailand is the most severe so far, as the country had successfully limited the spread in 2020.
The escalation has led to reduced mobility, with tight lockdowns in place across 29 out of 77 provinces in August, and more moderate lockdowns in the rest of the country. Overall mobility was about 27% lower than normal in August, according to Google Community Mobility data, which will slow down domestic activity. In addition, the pandemic escalation has pushed back the likely timelines for greater normalization of domestic activity and a gradual resumption of tourism.
"The services and informal sectors in Thailand have been under strain from the absence of tourism," said Mr. Rana. "The additional strain from a pandemic-related drop in domestic demand will weaken these sectors further."
We lowered our 2021 growth forecast for the Philippines to 4.3% from 6.0% in June, and we forecast growth of 7.7% in 2022 compared with our earlier forecast of 7.5%. Intermittent lockdowns have been weighing on economic activity, and a fresh escalation driven by the COVID-19 delta variant has led authorities to re-impose more stringent lockdowns in a number of major cities.
"The combined hit to activity from floods in parts of the Philippines and fresh lockdowns to contain the pandemic has significantly eroded what would have been a highly favorable base effect for the country," said Vincent Conti, senior economist, Credit Markets Research, at S&P Global Ratings. "The longer downturn will cause even more economic scarring. By 2025, the Philippines' GDP will likely be 12% below where it would have been without the pandemic."
We lowered our growth forecast for Malaysia to 3.2% in 2021 from 4.1% earlier. Strong international trade is providing a sizable buffer for growth this year. However, domestic demand is looking much weaker. Lockdowns to manage the ongoing pandemic wave have now been in place for around three months. The deeper downturn has cut activity in the services sector and is resulting in sizable job-losses-–in June the unemployment rate jumped to 4.8% from 4.5% in May.
Malaysia now has a relatively high vaccination coverage, with about 52% of the population having received at least one dose. This will enable a gradual re-opening of the economy over the next several months.
Vietnam had largely managed to contain the pandemic until earlier this year, but cases escalated noticeably in July. Since then, tight lockdowns have been enforced across wide parts of the country to contain the spread of COVID-19. The pandemic has disrupted manufacturing supply chains in the country as various factories have had to cut production and capacity. Overall, we forecast growth of 4.8% in 2021, down from our June projection of 7.3%.
| Revised GDP Growth Forecasts | |||||||
|---|---|---|---|---|---|---|---|
| GDP growth (% year-on-year) | Change from June | ||||||
| 2020 | 2021 | 2022 | 2023 | 2024 | 2021 | 2022 | |
| Malaysia | (5.6) | 3.2 | 6.0 | 5.2 | 4.6 | (0.9) | (0.3) |
| Philippines | (9.6) | 4.3 | 7.7 | 7.4 | 7.3 | (1.7) | 0.2 |
| Vietnam | 2.9 | 4.8 | 7.9 | 7.1 | 6.8 | (2.5) | 0.4 |
| Thailand | (6.1) | 1.1 | 4.2 | 5.1 | 2.9 | (1.7) | (0.7) |
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This report does not constitute a rating action.
S&P Global Ratings, part of S&P Global Inc. (NYSE: SPGI), is the world's leading provider of independent credit risk research. We publish more than a million credit ratings on debt issued by sovereign, municipal, corporate and financial sector entities. With over 1,400 credit analysts in 26 countries, and more than 150 years' experience of assessing credit risk, we offer a unique combination of global coverage and local insight. Our research and opinions about relative credit risk provide market participants with information that helps to support the growth of transparent, liquid debt markets worldwide.
| Asia-Pacific Economist: | Vishrut Rana, Singapore + 65 6216 1008; vishrut.rana@spglobal.com |
| Senior Economist, Credit Markets Research: | Vincent R Conti, Singapore + 65 6216 1188; vincent.conti@spglobal.com |
| Media Contact: | Richard J Noonan, Melbourne + 61 3 9631 2152; richard.noonan@spglobal.com |
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