An Automobile Assembly Plant in Thailand Temporarily Shutting Down on account of a nationwide state of emergency declared by the Government on March 24 to contain the COVID-19 outbreak[i]
Most of the Southeast Asian countries fall under the middle-income states and are struggling with the impact of the coronavirus pandemic which has brought their economic activities to a halt. Even the best performers and more developed economies such as Singapore, are seeing a significant surge in the number of positive cases. At the time of writing, Singapore had the most cases of COVID-19 in Southeast Asia with 20,198 positive cases[ii]. Prime Minister Lee had announced on April 21 the further extension of the‘circuit breaker’ to June 1, i.e. the stay at home order required to break the chain of the COVID-19 transmissions in the community.[iii] Indonesia has put a temporary ban until June 1 on domestic and international air travel while the ban on travel by sea would remain till June 8.[iv]
Economic Impact onthe Key Sectors of Southeast Asia
As the outbreak spread it has impactedthe economies of Southeast Asia which are centered mainly on tourism and export-oriented industries.The imposition of travel restrictions has impacted the tourism sector while the disruption of supply chains and temporary shutting of plants is effecting the ASEAN economies that rely on export-led growth.
Disruption in theTourism Sector
The economies in Southeast Asia depend significantly on tourism and travel. According to the analytics company GlobalData, the number of international visitors to the ASEAN region was expected to expand at a compound annual growth rate [CAGR] of 4.72 percent from 129.2 million in 2018 to 155.4 million in 2022.[v] The United Nations World Tourism Organization [UNWTO], based on the latest developments that include quarantine measures, travel bans and border closures, now estimates international tourist arrivals could decline by 20% to 30% in 2020. This would translate into a loss of US $300 to US $450 billion in international tourism receipts – almost one- third of the US$ 1.5 trillion generated globally.[vi]
The pandemic brought immediate disruptions to the entire tourism sector and its value chain in Southeast Asia. As the virus spread rapidly in China, most ASEAN countries restricted travel from/to China, which was then expanded to other affected countries such as Japan and Korea, by cancelling flights and tightening or even closing border crossings. The immediate and direct impact was thus on travel and tourism. These East Asian economies wereamong the largest sources of tourists to ASEAN, and travel restrictions further led to mass cancellation of bookings within the tourism industry, affecting businesses and workers.[vii]
The normally bustling Kuta Beach in Bali, Indonesia remains deserted over coronavirus fears[viii]
The suspension and likelihood of aslow resumption of tourism willhit the Thai economy which gets the maximum flow of tourists in the region and contributes one-fifth of its GDP. Other important tourist-dependent economies of Malaysia, Indonesia, Philippines, and Vietnamare also being impacted. Cambodia, despite reporting a low number of official COVID-19 cases, standing at 122 as on April 27, would be severely impacted as its economy is heavily dependent on tourism. In 2018, tourism contributed 32.8% to Cambodia’s GDP. Government figures from March 2020show the number of tourist arrivals has already dropped by more than 60%.[ix]Singapore had already been hit by declining trade volumes amid the US-China trade conflict in 2019 and is now facing a further drop in trade in goods as well as declining services, trade and tourism.[x]
Impact on the Manufacturing Sector
The slowdown in the manufacturing sectors inSoutheast Asiais linked to the weakness in the supply chains whose recovery would depend largely on the time taken to contain the virus. Southeast Asian countries are also largely dependent on trade and investment ties with China, where growth and demand have taken a hit from the pandemic.[xi]The Hubei province in China where Wuhan is located is a major industrial hub, particularly formachinery and electronics. The onset of the COVID-19 outbreak in Wuhan led to the temporary closure of factories in the Hubei province. With production coming to a halt, it created shortages in the supply of parts, which caused supply chain disruptions. Those integrated into the supply chains, including the manufacturing sectors in Southeast Asia were directly affected.[xii]
A Honda Manufacturing line in Vietnam; the company became the fourth automaker in the country to suspend production and assembly over the concerns of the COVID-19 [xiii]
One of the key industrial sectors in Thailand is automobiles which has received a substantial economic blow. Thailand earns around 10% of its GDP from the auto industry and accounts for nearly half the 4.15 million vehicles produced last year in Southeast Asia. After the declaration of emergency on March 26 in the country, despite orders which permitted factories to continue production has resulted in many auto companies suspending their production. Indonesia – which is the region's second-largest auto producer – and Vietnam are also suffering the economic costs with auto companies such as Honda Motor suspending production while Toyota and Mitsubishi have been reducing their output.[xiv]
Growth Projection for Southeast Asia
Southeast Asia is being impacted because of direct economicdisruption activities along with a global slump caused by the pandemic. The line graph indicates the GDP growth and forecast for Southeast Asian countries.
Figure One: Southeast Asia GDP Growth Rate [% per year]
Source: https://www.adb.org/sites/default/files/publication/575626/ado2020.pdf
The Asian Development Bank has estimated the growth for Southeast Asia to decelerate to 1.0% in 2020 on account of COVID-19. The data on the graph indicates that export-focused countries like Singapore, Malaysia, Thailand, and Vietnam are expected to see a sharp decline in their growth in 2020. Thailand, the second-largest economy in the region, will likely contract by 4.8% in 2020.[xv]The prevailing economic linkages between Singapore and Malaysia with each being the other’s second most important trading partner for goods and services, as well as FDI, and movement of people;[xvi] the impact of the pandemic will plummet their growth to nearly zero in 2020.Cambodia and Indonesia will see sharp deceleration, as will the Philippines despite expansionary government policies. Growth in Vietnam is forecast to decelerate significantly in 2020, but is expected to increase in the following year.[xvii] While growth for the current fiscal has been downgraded for all of the ASEAN states it is observed that the decline has varied across the region. For instance, countries such as Brunei, Myanmar, Laos, and Vietnam which have not reported major outbreaks with the number of positive cases at 138, 155, 19, and 270,[xviii] respectively, have witnessed a much lesser decline in their GDP. On the contrary ASEAN States that have reported a high number of COVID-19 cases such as Singapore, the Philippines, Malaysia, Indonesia, and Thailand, are projected to see a sharp decline in their GDP in 2020.
Containing the Economic Fallout through various Stimulus Measures
The rapid spread of the coronavirus in Southeast Asia with factories shuttered and services disrupted across the region to curb the outbreak has also led to huge investment outflows.Foreign investors are pulling their money out of Southeast Asia in favor of safer assets, like US treasury bonds. In March 2020, there has been an overall outflow of US$80 billion fromthe emerging economies, including in Southeast Asia.[xix]Further, in the same period Asian bonds recorded their biggest foreign outflows since January 2013 at US $ 17.28 billion. Out of this, Indonesian bonds posted $7.44 billion worth of outflows, the most in at least 10 years, while Malaysian and Thai bonds saw outflows worth US$ 2.85 billion and US$2.45 billion, respectively.[xx]
The immediate response being undertaken by the governments in Southeast Asia include financing to help cope with the health and economic impacts of the pandemic.The bar diagram below indicates the percentage of economic stimulus to GDP announced till date by some of the ASEAN States; while the rest of them have undertaken measures such as tax breaks, infused capital into their MSMSE’s, healthcare sector, and so on.
Figure Two: Economic Stimulus Announced by Countries in Southeast Asia
[ % of GDP]
To counter the emerging economic recession, Southeast Asian countries are announcing massive new rounds of fiscal stimulus. Malaysia till now has announced three rounds of fiscal stimulus – US$ 4.8 billion, US$ 57 billion, and US$ 2.3 billion – to combat the economic impact of the COVID-19 pandemic which is close to 20% of its GDP.[xxi]Singapore has injected three stimulus package till date worth US$ 42 billion that amounts to 12% of its GDP.[xxii]On April 7, 2020, the Thai government issued its third fiscal stimulus worth US$ 58 billion which is 10% of its GDP.[xxiii]The Indonesian government has set aside US$ 26.36 billion for the stimulus, equivalent to 2.5% of the country’s GDP.[xxiv] According to the Philippines Secretary of Finance, Carlos Dominguez, the government has set aside funds to battle the COVID-19 outbreak until the end of May. The Secretary stated that US $ 23 billion in funding, which is about 6 percent of the country’s GDP has been set aside for health-care and economic efforts.[xxv]Brunei has been hit by the COVID-19 outbreak along with a sharp decline in global oil prices. ItsMinistry of Finance and Economy announced anEconomic Stimulus Package to a total of US $ 3.2 billion which is 3.2 percent of its GDP.[xxvi]
On April 8, 2020, the Vietnamese government decreed a variety of incentives to dampen the economic impact of the COVID-19 outbreak. The incentives include providing tax breaks, delaying tax payments, and delaying land-use fees for businesses, costing the government US$1.16 billion.[xxvii]On April 2, the Prime Minister of Lao PDR announced various fiscal and monetary policy measures under the Decision on Policies and Measures to Reduce the Impact of the COVID-19 Pandemic on the Lao Economy.These measures were undertaken to keep the economy afloat and help out the affected micro-, small- and medium-sized enterprises in the country.[xxviii]Other Southeast Asian countries such as Myanmar unveiled a COVID-19 response plan that will expand economic stimulus and social protection measures, while also boosting healthcare spending to better prepare the country for an expected rise in coronavirus cases.[xxix]These measures include an allotment of US $ 0.2 million to the Ministry of Health and Sports, and a COVID-19 Fund worth US $ 70 million – 0.1 percent of its GDP – which is been established at the Myanmar Economic Bank to provide soft loans to the affected business at reduced interest rates. Cambodia, where the number of COVID-19 cases has stabilised, the government has announced a package consisting of tax concessions, expenditure and credit support. Additional fiscal resources to the health sector of around US $ 60 million – around 0.2 percent of its GDP –are expected.[xxx]
Conclusion: Business for Southeast Asia in the ‘New Normal’
For Southeast Asian countries that rely heavily on trade and investment as well as tourism, there is a need to adapt to changing practices in both Services and Manufacturing. With the traditional methodologies for conducting businesses temporarily closed, all areas of business operations are impacted.For instance, in the manufacturing sectors withrestrictions on sending staffto supplier factories to implement quality assurance work hasled to the suspension of the entire supply chain. Other traditional methods of business operation like utilisation of express mail for delivery of important documents cannot function inthe current situation. The options that remain open rely on “remote” operations. Therefore, in a post-COVID-19 world, business operation models would change and especially so in Southeast Asia which is part of the global supply chain.Countriesin the region would need toadapt to this new normal by taking measures such as enhancing digital infrastructure and altering their Standard Operating Procedures [SOP].[xxxi]
Industries across Southeast Asia are facing a slump on both the supply and demand sides along with the capital flight. The various economic stimulus measures announced by the individual ASEAN states which include fiscal and monetary packages would be crucial in reducing their economic recovery period. Also, the recovery would largely depend on the success in the containment of the pandemic along with normalcy returning in the demand and supply chain.The growth projection for Southeast Asia by the Asian Development Bank in 2021 – refer to the bar diagram in figure one – is at 4.7 percent. This positive growth projection for Southeast in 2021 could be attributed to the expectation of a V-shaped recovery in the manufacturing sector once normalcy returns in the demand and supply side. With the outbreak of the COVID-19 first hitting China numerous supply chains were disrupted. Many companies with plants in China are rethinking their supply lines. Further, over the past decade with the increase in the cost of production in China due to its government increasing the minimum wage bill, companies have been shifting their manufacturing to other countries and Southeast Asia was a major beneficiary of this.
The COVID-19 pandemic coincided with a difficult time for the countries in Southeast Asia. They were already facing the brunt of a global slowdown, increasing political and policy uncertainties, and in a postCOVID-19 world have to adapt to new Standard Operating Procedures. The recovery of the global economy since the crisis of 2008 has been slow along with increasing inward tendencies amongst nations in the West where the appeal for populist political agenda of anti-globalization and trade is on the rise. The outbreak of COVID-19 resulting in economic lockdowns across the globe has further fueled these inward tendencies. Multinational companies with manufacturing plants in Asia and large financial investors are rethinking their future production and investment strategies. As the infection continues to surge, countries in Southeast Asia while engaged in controlling the spread of the pandemic are confronted with a looming economic recession. The real effect of the pandemic for Southeast Asia would be the amplification of inward-looking tendencies in a post COVID-19 world.
*****
*Dr. Temjenmeren Ao, Research Fellow, Indian Council of World Affairs.
Disclaimer: The views expressed are that of the Researcher and not of the Council.
Endnotes
[i]“Toyota, Honda, Mazda, Ford suspend auto production in Thailand due to COVID-19 spread”, NNA Business News, March 30, 2020, https://english.nna.jp/articles/9736, accessed on April 20, 2020.
[ii]“The Coronavirus in Asia and ASEAN- Live Updates by Country”, ASEAN Briefing, May 4, 2020, https://www.aseanbriefing.com/news/coronavirus-asia-asean-live-updates-by-country/, accessed on May 4, 2020.
[iii]“In Full: PM Lee’s address to Singapore on extending the circuit breaker period to June 1”, The Straits Times, April 21, 2020, https://www.straitstimes.com/singapore/in-full-pm-lees-address-to-singapore-on-extending-circuit-breaker-period-to-june-1, accessed on April 21, 2020.
[iv]“Indonesia to ban air, sea travel till early June amid coronavirus pandemic”, The Straits Times, April 23, 2020, https://www.straitstimes.com/asia/se-asia/indonesia-to-ban-air-sea-travel-to-early-june-amid-coronavirus-pandemic, accessed on April 24, 2020.
[v]AdelaidaSalikha, “Ranked: International Tourist Arrivals in Southeast Asia Countries 2018”, SEASIA, March 15, 2019, https://seasia.co/2019/03/15/international-tourist-arrivals-in-southeast-asia-countries-2018, accessed on April 17, 2020.
[vi]“Impact Assessment of the COVID-19 Outbreak on International Tourism”, UNWTO, March 27, 2020, https://www.unwto.org/impact-assessment-of-the-covid-19-outbreak-on-international-tourism, accessed on April 17, 2020.
[vii]“Economic Impact of COVID-19 Outbreak on ASEAN”, ASEAN Policy Brief, April 2020, https://asean.org/storage/2020/04/ASEAN-Policy-Brief-April-2020_FINAL.pdf, accessed on April 17, 2020.
[viii]“Bali fears for future, as Indonesia’s cotonavirus cases jump”, Aljazeera, March 25, 2020, https://www.aljazeera.com/news/2020/03/die-fears-future-indonesia-tourism-hotspot-200319064307505.html, accessed on April 15, 2020.
[ix]Dora Heng, “COVID-19 lessons for Cambodia: Boosting resilience and economic recovery”, ASEAN Today, April 8, 2020, https://www.aseantoday.com/2020/04/covid-19-lessons-for-cambodia-boosting-resilience-and-economic-recovery/, accessed on April 20, 2020.
[x]Amy Searight, “The Economic Toll of COVID-19 on Southeast Asia: Recession Looms as Growth Prospects DIM”, Centre for Strategic and International Studies, April 14, 2020, https://www.csis.org/analysis/economic-toll-covid-19-southeast-asia-recession-looms-growth-prospects-dim, accessed on April 21, 2020.
[xi]Joshua Kurlantzick, “Can Southeast Asia Fend Off the One-Two Punch of COVID-19?”, World Politics Review, April 17, 2020, https://www.worldpoliticsreview.com/articles/28691/can-southeast-asia-fend-off-the-one-two-punch-of-covid-19, accessed on April 20, 2020.
[xii]“Economic Impact of COVID-19 Outbreak on ASEAN”, ASEAN Policy Brief, April 2020, https://asean.org/storage/2020/04/ASEAN-Policy-Brief-April-2020_FINAL.pdf, accessed on April 17, 2020.
[xiii]“Honda Vietnam suspends production due to COVID-19”, Vietnam Investment Review, April 1, 2020, https://www.vir.com.vn/honda-vietnam-suspends-production-due-to-covid-19-75256.html, accessed on April 15, 2020.
[xiv]YoheiMuramatsu and KoyaJibiki, “Southeast Asia’s auto plants limp along at 30% of capacity”, Nikkei Asian Review, April 9, 2020, https://asia.nikkei.com/Business/Automobiles/Southeast-Asia-s-auto-plants-limp-along-at-30-of-capacity, accessed on April 15, 2020.
[xv]Chris Devonshire-Ellis, Dezan Shira & Associates, “Growth in Emerging Asian to Rebound in 2021 – Asian Development Bank”, ASEAN Briefing, April 3, 2020, https://www.aseanbriefing.com/news/growth-in-emerging-asia-to-rebound-in-2021-asian-development-bank/, accessed on April 15, 2020.
[xvi]Francis E. Hutchinson and Pritish Bhattacharya, “Singapore-Malaysia Economic Relations: Deep Interdependence”, ISEAS- Yusof Ishak Institute, Issue:2019 No 9, January 11, 2019, https://www.iseas.edu.sg/images/pdf/ISEAS_Perspective_2019_2.pdf, accessed on May 5, 2020.
[xvii]Chris Devonshire-Ellis, Dezan Shira & Associates, “Growth in Emerging Asian to Rebound in 2021 – Asian Development Bank”, ASEAN Briefing, April 3, 2020, https://www.aseanbriefing.com/news/growth-in-emerging-asia-to-rebound-in-2021-asian-development-bank/, accessed on April 15, 2020.
[xviii]“The Coronavirus in Asia and ASEAN- Live Updates by Country”, ASEAN Briefing, May 4, 2020, https://www.aseanbriefing.com/news/coronavirus-asia-asean-live-updates-by-country/, accessed on May 4, 2020.
[xix]Joshua Kurlantzick, “Can Southeast Asia Fend Off the One-Two Punch of COVID-19?”, World Politics Review, April 17, 2020, https://www.worldpoliticsreview.com/articles/28691/can-southeast-asia-fend-off-the-one-two-punch-of-covid-19, accessed on April 20, 2020.
[xx]Foreigners aggressively sold Asian bonds in March on coronavirus worries”, Reuters, April 13, 2020, https://www.reuters.com/article/asia-bonds-flows/foreigners-aggressively-sold-asian-bonds-in-march-on-coronavirus-worries-idUSL4N2B93JE, accessed on April 15, 2020.
[xxi]“Malaysia: Bold Fiscal response to counter COVID-19”, DBS, March 30, 2020, https://www.dbs.com/aics/templatedata/article/generic/data/en/GR/032020/200330_insights_malaysia.xml, accessed on April 20, 2020.
[xxii]Dewey Sim, “Coronavirus: Singapore unveils US$ 3.6 billion third stimulus package for battered economy”, South China Morning Post, April 6, 2020, https://www.scmp.com/week-asia/economics/article/3078598/singapore-unveils-us36-billion-stimulus-package-third-boost, accessed on April 20, 2020.
[xxiii]“Thailand Issues Third COVID-19 Stimulus Package”, ASEAN Briefing, April 23, 2020, https://www.aseanbriefing.com/news/thailand-issues-third-covid-19-stimulus-package/, accessed on April 24, 2020
[xxiv]“Indonesia’s COVID-19 Stimulus worth 2.5% of the GDP, lower than Singapore, Malaysia”, The Jakarta Post, April 7, 2020, https://www.thejakartapost.com/news/2020/04/07/indonesias-covid-19-stimulus-worth-2-5-of-gdp-lower-than-singapore-malaysia.html, accessed on April 20, 2020.
[xxv]Yen Nee Lee, “Philippines is prepared for the coronavirus outbreak to last until end-May, says finance secretary”, CNBC, April 8, 2020, https://www.cnbc.com/2020/04/08/coronavirus-philippine-finance-secretary-on-funding-to-support-economy.html, accessed on May 3, 2020.
[xxvi]“Policy Responses to COVID-19”, International Monetary Fund, May 1, 2020, https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#B, accessed on May 3, 2020.
[xxvii]“Vietnam Issues Incentives to counter COVID-19 Impact”, Vietnam Briefing, April 15, 2020, https://www.vietnam-briefing.com/news/vietnam-issues-incentives-counter-covid-19-impact.html/, accessed on April 20, 2020.
[xxviii]“COVID-19: The Lao PDR Government Announces New Economic Policy Measures”, VDB, April 3, 2020, http://www.vdb-loi.com/laos_publication/covid-19-the-lao-pdr-government-announces-new-economic-policy-measures/, accessed on April 20, 2020.
[xxix]Thomas Kean and Kyaw Lin Htoon, “Government set to unveil COVID-19 economic response plan”, Frontier Myanmar, April 26, 2020, https://frontiermyanmar.net/en/government-set-to-unveil-covid-19-economic-response-plan, accessed on April 27, 2020.
[xxx]“Policy Responses to COVID-19”, International Monetary Fund, May 1, 2020, https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#B, accessed on May 3, 2020.
[xxxi]Chris Devonshire-Ellis, Richelle Tay, and Thomas Zhang, “Operating Your China Business Remotely from Singapore”, ASEAN Briefing, January 30, 2020, https://www.aseanbriefing.com/news/operating-china-business-remotely-singapore/, accessed on April 10, 2020.