Hanoi, Viet Nam, 13 November 2020 - ASEAN economies will contract by an average of 4.3% in 2020 as the COVID-19 crisis continues to hammer regional economies, according to a new OECD Development Centre report. Strong support from fiscal and monetary policies are necessary for enabling economic recovery in the near term and for maintaining stability and confidence in financial markets.
The drop in economic activity is the sharpest in decades, but the unprecedented measures taken by governments and central banks in these exceptional times should limit the losses this year and enable a recovery next year. GDP in ASEAN is projected to decline by an average of 4.3% in 2020 and forecast at 5.4% in 2021.
In Emerging Asia - the ASEAN-10 plus China and India- it is anticipated to decline by an average of 2% this year and to rise by 8.1% in 2021, according to the OECD Development Centre’s Economic Outlook for Southeast Asia, China and India 2020 - November Update: Ongoing challenges of COVID-19, released today at the ASEAN Business and Investment Summit.
GDP growth rates for the second quarter disappointed across the board, but there are signs of improvement for the rest of the year. All countries are affected by the downturn, although their prospects vary depending on domestic circumstances and the state of public health. The Philippines and Thailand will be hit hardest among the ASEAN-5, while Cambodia will largely underperform its peers, Lao PDR and Myanmar. The evolution of the pandemic is uneven across the region, with the cumulative number of confirmed cases currently exceeding 350 000 in both Indonesia and the Philippines.
The downswing is affecting nearly all growth components. Private consumption is particularly affected, with real disposable income likely to be dampened by a progressive deterioration in the labour market. Private investment will remain weak due to underuse of capacity and continuing uncertainty. Similarly, exports will remain muted in light of the marked decline in world trade and a potential disruption of global value chains as trade tensions re‑emerge. Financial markets are broadly stable, but a deterioration of financial sentiment could further impair capital flows to the region. At the sectoral level, the travel and tourism industry will continue to face challenges.
ASEAN authorities have responded to the crisis with decisive policy packages. The central banks of Indonesia, Malaysia, Myanmar, the Philippines and Thailand have lowered policy rates by 75 to 300 basis points since the end of 2019. Monetary policy support was complemented by unprecedented fiscal stimulus. The sizeable budgetary stimulus to support economic activity will exact its toll on public finances.
The economic challenges facing policy makers are enormous. One such challenge involves ensuring that the extra resources allocated to counter the crisis effectively tackle the needs of businesses and households. Another is to secure the long-term sustainability of public finances in a context of rising deficits. ASEAN countries could consider broader policy options, including region-wide co-operation, to tackle this twin challenge.
For further information on the Economic Outlook for Southeast Asia, China and India 2020 - November Update: Ongoing challenges of COVID-19, please visit: www.oecd.org/dev/asia-pacific.
The report benefitted from additional support of the governments of Japan, Korea and Switzerland, and the European Union.
Journalists are invited to contact Kensuke Tanaka, Head of Asia Desk, OECD Development Centre (Kensuke.Tanaka@oecd.org, tel. +33 6 27 19 05 19), Bochra Kriout at the OECD Development’s Centre Press Office (Bochra.Kriout@oecd.org, tel. +33 1 45 24 82 96), or Yumiko Yokokawa at OECD Tokyo Centre (Yumiko.Yokokawa@oecd.org, tel +81 3 5532 0021).