The spread of the highly contagious Delta variant of COVID-19 has cast a shadow on South-East Asia (SEA) and limited economic recovery for the region this year, especially for countries with low levels of Covid-19 immunity. The economies of several countries are expected to have contracted in the third quarter of this year, but the outlook for the region in 2022 is more positive, according to the latest Global Economic Forecast Report from ICAEW and Oxford Economics. 

The Global Economic Forecast Report predicts that economies with low immunity levels face the greatest risks moving forward. As the Delta variant triggers a renewed surge in Covid-19 cases, certain countries remain vulnerable to its impact, due to having slower vaccination rollouts and higher exposure to global supply chain disruption. 

Asian economies have experienced varying degrees of success in containing the Delta variant, because of differing rates of vaccination and social distancing restrictions. On one end of the spectrum, significant waves of infections in Vietnam, Malaysia, Philippines, and Thailand in the last quarter mean those countries face a delayed recovery in 2021, according to the report, but they should see a significant rebound in 2022, once vaccination rates are higher and lockdowns are lifted. 

On the other end, Singapore, Hong Kong, and China have recorded much lower cases. Despite some fallout from the Delta variant, which has resulted in tighter restrictions in the third quarter of this year (Q3), the outlook for 2022 for these economies is robust, because of high vaccination rates and successful use of targeted restrictions.

GDP in Singapore is projected to grow by 6.4% this year, similar to the forecast in ICAEW’s last report, with further easing of Covid-related restrictions over the coming quarters likely given that over 80% of the population is now fully vaccinated. Although the pace of reopening will remain gradual given the government’s cautious approach to the pandemic, momentum is expected to rise in the second half of 2021 as restrictions ease. With pent-up demand supporting growth in the coming quarters, Singapore’s GDP is forecast to grow at a solid pace of 4.1% in 2022.

Recovery prospects remain dim in the short-term for countries such as Vietnam, Philippines, and Thailand, which continue to battle against the spread of the virus. Heavily export-oriented economies like Vietnam remain dependent on the recovery of the manufacturing sector. Nonetheless, Vietnam’s GDP is projected to grow by 5.4% (revised down from 7.6% in ICAEW’s last report) in 2021, before accelerating to 7.5% in 2022. The pick-up in growth will be driven by restrictions easing and industrial recovery gaining traction around mid-2022.

Mark Billington, ICAEW Managing Director International, said: “The Covid-19 Delta variant has derailed the recovery process for most South-East Asian economies and the reality of living with Covid-19 as endemic is proving to be complex.”

“Not only do governments have to implement appropriate restrictions and measures to curb the spread of the variant, but they also need to speed up their vaccination rollouts to achieve immunity, in order to improve their prospects for growth.”

Across the world, many economies saw a weak start to the year, with rising infections and tighter restrictions putting a drag on activities in Q1 before picking up in Q2, as vaccination programs were implemented. Global GDP grew by 1.4% in Q2 2021, exceeding the rate of growth seen in the 15 years prior to the Covid-19 pandemic, including the pace of recovery seen after the Global Financial Crisis of 2008. However, there are signs that momentum may be faltering, driven by tighter restrictions and concerns about the Delta variant, as well as supply chain disruptions that are affecting key sectors such as manufacturing. Overall, ICAEW’s Global Economic Forecast Report expects the global economy to expand by around 5.8% in 2021 and 4.7% in 2022. 

At an International Economic Forum hosted by ICAEW on 14 September 2021, industry leaders and experts discussed the economic outlook for China, South-East Asia, and the Middle East, with a focus on the impact of the Delta variant and how countries can create growth through greener economies. The post Covid-19 era will be dominated by climate change and recovering from the pandemic presents an opportunity for businesses to build back in a stronger and sustainable way for a better future.