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ASEAN growth bottoming out

Sung Eun Jung
The ASEAN-6 economies are expected to see stronger growth in 2022 as they come to terms with ‘living with COVID’
Economist at Oxford Economics

Real GDP for ASEAN-6 economies grew 1.7% year-on-year in Q3, down from 9.3% in Q2, reflecting both a less favourable base effect and a drop in growth momentum due to tightening restrictions.

Our growth tracker was broadly in line with third quarter GDP for Indonesia, Singapore and Thailand, while GDP undershot the tracker for the Philippines, and to a lesser extent, for Malaysia and Vietnam. We think the volatility in the Philippines’ industrial production growth in July and August, which is captured by the tracker, partly overstated third quarter growth. For Malaysia and Vietnam, the tracker doesn’t directly capture the construction sector, which fell sharply in Q3 for both countries.

Exhibit 1: We expect our growth tracker to start trending up beginning in October after bottoming out in September

But our ASEAN-6 growth tracker’s monthly profile paints a better picture. As growth momentum improved towards the end of Q3, the tracker remained broadly stable at 3.1% year-on-year in September after a continued slowdown from May to August (Exhibit 1).

Looking at individual countries, our growth tracker improved from August to September for all ASEAN-6 economies except for the Philippines (Exhibit 2) and Singapore (Exhibit 3). A waning base effect was the main cause behind Singapore’s growth slowdown, while restrictions remained tight in the Philippines through September despite some easing since mid-August.

Exhibit 2: The Philippines’s GDP undershot our growth tracker in Q3

Exhibit 3: The downtick in Singapore’s tracker in September reflects waning base effect

Drag from retail sales and manufacturing partially offset by exports and air traffic growth

Breaking down our growth tracker by sub-components, goods exports continued to contribute positively to year-on-year growth of the tracker for most ASEAN-6 economies throughout Q3, albeit with waning force compared to H1 2021. With borders gradually reopening in the region to boost international tourism, air transport has also become a positive contributor to the tracker since Q2 this year, though it would require many more months of strong growth to recover to pre-pandemic levels.

Meanwhile, the manufacturing sector weakened in Q3, dragging on the growth tracker. We had observed weakening momentum in manufacturing activity in July when the tracker was last updated. Industrial production has generally dragged on the tracker across the region in recent months due to supply side challenges, after having contributed positively in H1 2021. But the drag lessened from August to September for Malaysia and Thailand.

Retail sales, meanwhile, continued to drag on the growth tracker for most ASEAN-6 economies in Q3, but generally improved from August to September as mobility restrictions were eased. Goods imports also picked up across the region, suggesting improving domestic demand. The contribution to the tracker from car sales remained positive in Indonesia and the Philippines throughout Q3, but car sales for Malaysia, Thailand and Vietnam proved a negative. A deeper integration into the global supply chain of the auto industry, which has been heavily impacted by global chip shortages, likely explains the weaker performance of the latter group.

We expect growth momentum will pick up from Q4

With COVID-related restrictions generally easing, we expect the uptrend in our growth tracker will broaden across the region, and ASEAN-6 growth will pick up further from October onwards. Malaysia (Exhibit 4) and Indonesia (Exhibit 5) have progressively reopened their economies over the past two months.

Exhibit 4: The uptick in Malaysia’s tracker in September supports Q4 growth rebound

Exhibit 5: Indonesia’s growth tracker regained momentum in September

Thailand (Exhibit 6) is allowing quarantine-free travel from a greater number of countries to beef up its tourism sector.

Exhibit 6: We expect Thailand’s tracker will further improve from October onwards

Vietnam (Exhibit 7) has also abandoned its zero-COVID policy, with the authorities prioritising the vaccination of factory workers to prevent further disruptions to its manufacturing sector.

Exhibit 7: We forecast Vietnam’s GDP will pick up pace in Q4 after plunging in Q3

We expect the manufacturing sector will regain momentum in Q4 as the labour shortage issue resolves with economies reopening despite ongoing global supply chain disruptions. Indeed, the PMI for ASEAN improved significantly to 50 in September and 53.6 in October from 44.5 in August. Moreover, we expect consumer spending will gradually rise from Q4 in line with improving sentiment.

Growth catch up will continue in 2022 and 2023

The recovery in the fourth quarter won’t be enough to compensate for the slowdown in the first three. Except for Singapore, we expect below-trend growth for ASEAN-6 economies this year despite a favourable base effect. Multiple COVID waves, retightening of restrictions, a slow start to vaccination and prolonged border controls have all contributed to sub-par growth.

After contracting 3.6% in 2020, we forecast ASEAN-6 GDP will only grow 3.5% in 2021, which is significantly lower than the five-year historical average of 5%.

But we forecast a stronger recovery in 2022, as economies adjust to ‘living with COVID’. Vaccinating children, when approved by authorities in each country, could support a more sustainable economic reopening given a sizeable share of young population in many ASEAN economies. Indonesia has already approved the Sinovac vaccine for children aged six and above, with plans to start vaccinating them in the coming months. Following the US approval of the Pfizer vaccine for children aged 5-11, the authorities in Singapore have also started a trial on rolling out COVID vaccine for kids.

As growth catches up, we forecast ASEAN-6 economies will record above-trend growth of 6.3% in 2022 and 6.6% in 2023.

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Sung Eun Jung
Economist at Oxford Economics

Sung leads Indonesia and Singapore research and contributes to the Asia Pacific regional analysis. She is based in Oxford Economics’ Singapore office. Prior to joining Oxford Economics, she worked at the IMF as a Research Officer.

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