Pandemic disrupting 2021 growth outlooks in southeast Asia: S&P

Singapore: Emerging southeast Asian economies are facing intense headwinds from persistent COVID-19 pandemic waves, S&P Global Ratings said on Thursday, adding that private consumption and services will be hit hardest.

The duration and severity of the pandemic has been more adverse than previous baseline expectations. "As a result, we are revising downward our 2021 growth expectations for a number of emerging southeast Asia economies."

S&P said while the new lockdowns this year have been less costly as economies adapted to reduced mobility, the longer durations have meant that the economic costs are rising. Meanwhile, external demand will provide a buffer against further outlook deterioration.
International trade remains strong due to healthy demand for goods as global economies open up.

"A fresh slump in demand in emerging southeast Asia is hitting sectors that have already faced a challenging year," said Vishrut Rana, Asia Pacific economist at S&P Global Ratings.

"As the pandemic drags on, balance sheets will deteriorate for households, small and midsize enterprises, banks, and the wider economy, leading to more medium-run economic scarring."

Policy settings across the region are likely to remain steady. Central banks are wary of easing further. The US Federal Reserve's next policy change is likely to be tapering of quantitative easing, and policy easing from southeast Asian central banks could increase capital outflows in the region.

The central banks are already deploying a range of tools, including loan moratoriums and acquisition of public securities.

Meanwhile, core inflation and broader inflationary pressures are subdued amid weakening domestic demand. So central banks are unlikely to tighten policy further.
New fiscal stimulus measures announced this year in southeast Asian economies have been more limited in scope, given that the fiscal policy space was significantly eroded during the initial pandemic escalation in 2020.
Overall public spending is still set to support growth during the year based on previously announced measures and government budgets for the year.
S&P revised 2021 growth forecast for Thailand lower to 1.1 per cent from its June forecast of 2.8 per cent.
It lowered 2021 growth forecast for the Philippines to 4.3 per cent from 6 per cent in June, and forecast growth of 7.7 per cent in 2022 compared with earlier forecast of 7.5 per cent.

The agency lowered growth forecast for Malaysia to 3.2 per cent in 2021 from 4.1 per cent earlier. For Vietnam. it forecast growth of 4.8 per cent in 2021, down from June projection of 7.3 per cent.