SINGAPORE, October 7, 2021 – The ASEAN+3 Macroeconomic Research Office (AMRO) today published the Update to its annual flagship report, the ASEAN+3 Regional Economic Outlook (AREO) 2021. The realization of downside risks foreshadowed in the March report—in the form of disruptions caused by the COVID-19 Delta variant—has resulted in downward revisions to AMRO staff’s ASEAN+3 growth forecasts for this year. Economic activity is now projected to expand by an aggregate 6.1 percent in 2021 and 5.0 percent in 2022, after posting flat growth in 2020.
However, the region’s rapid progress in vaccinations will be a game changer for containing the virus and is giving cause for cautious optimism. A year and a half into the pandemic, the goal of achieving herd immunity and protection from the virus through mass vaccinations is becoming a reality for the region even while infections have evolved from a pandemic into an endemic state. The combination of efficacious vaccines and treatments, and greater adeptness at targeting containment and support policies are fueling optimism and providing more clarity on what a post-pandemic “new normal” could look like.
“The road to recovery is paved with vaccinations,” stated AMRO Chief Economist, Hoe Ee Khor. “With the majority of regional economies on track to achieve their vaccination targets by early 2022, we expect the ASEAN+3 region to grow by 5.0 percent next year, slightly better than our March projections,” Khor added.
The region is adapting and learning to function within the more uncertain environment. The pandemic has altered the way businesses and consumers transact, accelerated digitalization, and led to the emergence of new business models and types of firms. Manufacturing sentiment has remained persistently higher than the trough seen last year, and the strong turnaround in global demand for electronics, autos, and consumer products is benefiting the region’s manufacturing exports and supporting the recovery. Mobility indicators have also picked up in recent months as infection rates recede in most countries, boding well for future consumption. Rising protection and immunity are also allowing the restart of travel, with the launch of bubbles, corridors, and sandboxes for vaccinated travellers, albeit with constant recalibration of the degree of opening up.
The ASEAN+3 growth trajectory will depend on how successfully the region transitions to an “endemic new normal,” while dealing with the economic scars left by the pandemic. The adverse impact of the pandemic on the region has been mitigated by unprecedented policy actions, and economies that are recovering well have begun to scale back those measures. But, given the constant mutation of the virus to more infectious and possibly more vaccine-resistant variants, policy responses will also need to be as nimble and quick to change as the virus. Any premature or miscommunicated withdrawal of the financial support measures could potentially trigger a cliff effect.
“Tapering pandemic support will be the great balancing act for the ASEAN+3 in 2022,” said Li Lian Ong, Group Head of Financial Surveillance and Regional Surveillance. “Exiting too quickly risks derailing the region’s recovery; exiting too slowly risks propping up unviable businesses and sectors at huge expense to the fiscal purse,” she cautioned.
Any withdrawal of policy support needs to tread the fine line between preserving the remaining policy space and supporting the rebound. Achieving both objectives will require successful vaccination campaigns, stronger healthcare systems, and transformations of the workforce and industries to address challenges exposed by the pandemic and seizing opportunities in the new normal. The observed unevenness in the recovery across sectors and businesses, segments of the population, and individual economies could lead to lasting inequalities and social inequity, if not properly addressed.
The ASEAN+3 Macroeconomic Research Office (AMRO) is an international organization established to contribute towards securing macroeconomic and financial stability of the ASEAN+3 region, comprising 10 members of the Association of Southeast Asian Nations (ASEAN) and China; Hong Kong, China; Japan; and Korea. AMRO’s mandate is to conduct macroeconomic surveillance, support the implementation of the regional financial arrangement, the Chiang Mai Initiative Multilateralisation (CMIM), and provide technical assistance to the members.