MANILA, Philippines — The Southeast Asian region is expected to continue its recovery this year, with the Philippines seen registering the strongest growth, but new COVID-19 variants remain a threat in the region’s rebound.
In its weekly economic preview, market intelligence firm IHS Markit said strong economic expansion is expected in most of the Southeast Asian nations except for Myanmar.
But such a positive outlook still has risks with the continued emergence of new variants, especially the rapid spread of the highly transmissible Omicron.
“The central economic scenario for 2022 continues to be positive, with the world economy gradually emerging from the pandemic,” IHS Markit Asia Pacific chief economist Rajiv Biswas said.
“The outlook is for continued economic expansion in 2022. The high level of second dose vaccinations achieved in the second half of 2021 in many ASEAN nations should help to improve resilience to further new COVID-19 waves in 2022,” he said.
Still, the Omicron variant is expected to impact the region in the first quarter of 2022, which could create further temporary disruptions to economic activity, depending on the severity and duration of the latest wave.
Of all economies in the region, the Philippines is seen posting the strongest growth at around 7.2 percent. This is within the government’s seven to nine percent target for this year.
This is also way above the average five percent economic growth for the whole region.
The Philippines will be followed by Vietnam at around six percent, Brunei at 5.8 percent, and Malaysia at 5.7 percent. Thailand is seen posting the slowest growth at 3.8 percent.
Biswas emphasized that domestic demand would be an increasingly important growth driver, as the rapidly growing consumer markets of populous ASEAN nations, notably Indonesia, Philippines and Vietnam, help to drive consumption spending.
He said domestic demand would support momentum in the country given that the pandemic is gradually mitigated by high vaccination rates and new medical treatments.
In terms of vaccination, however, the Philippines remains lagging in the region and is only ahead of Myanmar and Indonesia.
“The gradual reopening of international travel will be particularly important for nations with large tourism sectors, such as Thailand, Philippines, Singapore and Malaysia,” Biswas said.
“Strong investment expenditure will also be an important factor supporting growth, through a combination of rapid growth in public infrastructure spending, strong private investment growth and buoyant foreign direct investment inflows,” he said.
While economic growth momentum is seen improving this year, Biswas emphasized that most ASEAN countries will face the medium-term challenge of fiscal consolidation.
This is due to the high level of government expenditure since 2020 as part of fiscal response, which in turn led to huge jumps in debt-to-GDP ratio.
While the region suffered protracted negative economic shocks due to the pandemic, Biswas said ASEAN will continue to be one of the fastest growing regions of the world in the long-term.
Total ASEAN economy is forecast to more than double over the next decade, increasing from $3 trillion in 2020 to $6.5 trillion by 2030.
“This rapid pace of growth will be driven by both exports and domestic demand. ASEAN’s exports will be boosted by strong growth in exports to other fast-growing Asia- Pacific markets, notably China and India,” Biswas said.