Asia: Despite continued headwinds, most of the region expects a return to growth

While Asia witnessed a return to growth following the economic uncertainty of 2020, a number of factors such as supply chain bottlenecks, weak global demand and the persistence of Covid-19 somewhat hindered the region’s economic recovery in 2021.
As it did last year, the pandemic continued to affect Asia’s economic prospects significantly throughout 2021.
After a strong first half of the year, in which many countries recorded double-digit year-on-year growth, the spread of the Delta variant in the third quarter led to the implementation of lockdowns and travel restrictions across the region.
Malaysia, the Philippines, Singapore, Thailand and Vietnam were among those that experienced some form of lockdown throughout the year, as governments attempted to halt the spread of the virus.
This led to the closure of factories in key manufacturing countries, severely hampering the region’s industrial output.
Although certain exemptions were made – in Malaysia, for instance, electronics companies were allowed to operate at 60% capacity and automakers at 10% – the disruptions created serious supply-side shortages for various industries.
Given that South-east Asian firms account for around 27% of global packaging and testing of microchips, the lockdowns and factory closures exacerbated the global microchip shortage, which was responsible for a slump in automotive production and sales across the region.
For example, Toyota, the world’s largest carmaker, cut global production by 40% in both September and October, largely due to supply chain issues stemming from South-east Asia.
While the lockdowns led to a general slowdown in economic activity domestically, Asia was also affected by some of the economic troubles facing China, where supply bottlenecks, an overleveraged property market and power outages combined to limit demand throughout the year.
Growth amid challenges
Despite the disruptions, most countries in the region are still expected to rebound from 2020’s contraction to record positive growth this year. This will be led by India and China, despite the latter’s difficulties, with the IMF projecting the two countries will grow by 9.5% and 8%, respectively.
The situation is tipped to be slightly more restrained in other parts of the region, with the fund projecting average growth of 2.6% for South-east Asia as a whole, below the 5.9% forecast for the global economy and 8.5% for South Asia.
One particular outlier was Myanmar, which the IMF expects to contract by 17.9% this year due to political instability and the spread of Covid-19.
Tourism rebound
Another key theme for many Asian countries in 2021 was the attempt to trigger a rebound in tourism, which had been stymied by around 18 months of Covid-19-related border restrictions.
The sector is important for a number of South-east Asian emerging markets, with pre-pandemic tourism accounting for around 11-12% of GDP in Thailand, the Philippines and Vietnam.
In terms of reviving tourism, Thailand led the way, introducing a first-of-its-kind “sandbox” tourism scheme in July. The initiative allowed vaccinated foreigners to travel to the Phuket region without needing to quarantine, provided they tested negative before and directly after arrival.
This was followed in September by the release of a four-phase plan to reopen the country by prioritising key tourist destinations. From November 1 quarantine requirements were removed for vaccinated travellers from 10 countries – among them China, Germany, Singapore, the UK and the US – while the plan also outlined a strategy to open various parts of the country to tourism from October through to January.
In a similar approach, in November Vietnam welcomed its first international tourists since March 2020. Vaccinated foreign tourists from low-risk countries who present a negative test on arrival are able to travel to the island of Phu Quoc without the need to quarantine, with additional destinations such as Halong Bay, Hoi An, the highlands town of Dalat and the beach destination of Nha Trang to be added to the list from December onwards.
Elsewhere, Singapore established quarantine-free travel in October through its Vaccinated Travel Lanes system, which allows vaccinated passengers from selected countries to enter the country if they have a negative PCR test. On November 29 it launched a quarantine-free travel lane for vaccinated people at its land crossing with Malaysia, one of the world’s busiest.
Other countries have taken a slightly more circumspect approach.
For instance, on October 14 Indonesia allowed vaccinated foreign tourists from 19 countries – including Bahrain, China, France, India, New Zealand, Saudi Arabia and the UAE – to travel to the popular destination of Bali.
In contrast to elsewhere in the region, those entering Indonesian tourist hotspots are still required to spend five days in quarantine, in addition to paying for quarantine insurance and a hotel stay for the initial quarantine period.
However, in light of the identification of the new Omicron variant of coronavirus at the end of November, it remains to be seen whether these moves towards reopening will be rolled back.
At the time of writing, many South-east Asian nations are imposing some border restrictions – for example, travellers from eight African nations will no longer be allowed to enter Thailand as of December, while Singapore has similarly banned entries from selected African countries and delayed the launch of Vaccinated Travel Lanes with Qatar, Saudi Arabia, and the UAE.
Nevertheless, on November 30 Thailand’s minister of tourism ruled out another full border closure, unless the country finds itself in a “very critical situation”.
Looking ahead to 2022
The IMF has forecast growth of 5.5% for South-east Asia and 8% for South Asia next year, above the global average of 4.9%, with countries such as Vietnam (6.6%), the Philippines (6.3%), Malaysia (6%) and Indonesia (5.9%) all tipped to experience robust expansion. A key reason for this positive outlook is related to the increase in vaccination coverage.
Singapore is a world leader in this regard, with 92% of the population fully vaccinated against Covid-19 as of November 29. Malaysia (77%) and Thailand (59%) are among those making good progress, with the latter expected to reach 70% full vaccination by the end of the year.
Others in the region are not as far along in their respective inoculation programmes, with Indonesia having fully vaccinated just 34% of its population, followed by the Philippines (28%) and Myanmar (19%).
Although economic prospects for the region look strong for 2022, the discovery of the Omicron variant has been a critical reminder that fresh outbreaks of Covid-19 could continue to hinder growth, particularly in economies with low vaccination coverage.