Commodity exporters like Malaysia and Indonesia have been riding on the commodity upcycle.

Trade trade-offs

Despite talk of a global recession, many ASEAN economies are witnessing a strong recovery so far in 2022. While a sharp rebound in domestic demand offers obvious benefits, it is the external sector – a firm growth pillar in the past two years – which has remained surprisingly resilient. For one, commodity exporters like Malaysia and Indonesia have been riding on the commodity upcycle.

Meanwhile, tech-exposed economies, including Singapore, Malaysia and Vietnam, continue to benefit from still elevated demand for electronics. That said, after two years of impressive growth, trade is set to moderate. There is a risk of a sharp correction in the commodity space, while early signs point to weaker demand for broader electronics products.

Added capacity to the rescue

While ASEAN is not fully insulated from a trade slowdown, its increasing share of the global export market – the result of multiple years of efforts to attract quality foreign direct investment (FDI) – is likely to provide a buffer.

Despite an imminent tech slowdown, Singapore, Malaysia and Vietnam have climbed up the value chain over the years, thanks to the consistent addition of new capacity. Indonesia, albeit with a still relatively lower share of FDI, has ambitions to become prominent in the global electric vehicle (EV) supply chain. This added capacity will likely offer some pockets of resilience in ASEAN’s exports in the face of rising trade challenges.

Don’t forget services

In addition to goods, there are also exports of services to consider. As the world gradually returns to normal and travel restrictions ease, we expect to see a structural tilt in global demand from goods to services, a boon for travel and tourism sectors.

Based on HSBC’s estimates, ASEAN will likely get a significant boost, especially tourism heavy economies like Thailand and Vietnam, providing some pockets of resilience. However, global challenges, including rising costs of living in some parts of the world, can slow the recovery, and it may take some time for tourist levels in the region to reach pre-pandemic levels.