*The following is an excerpt of the article by Park BunSoon, Professor of Economic Policy and the College of Public Policy, Korean University. He holds advisory positions to various government institutions including the Presidential Committee on New Southern Policy, the Ministry of Foreign Affairs and Korea Institute for International Economic Policy. Over the past 30 years, he has been dedicated to the study of Southeast Asian economy. Please click here for the full article.
Impacts of COVID-19 on the ASEAN Economy
Almost a year has passed since the outbreak of COVID-19, and still the end is nowhere in sight. Rather, we are beginning to see signs of a resurgence of the virus as winter approaches. If this situation continues, the initial signs of recovery are likely to be offset as the global economy plunges into yet a deeper recession. The coronavirus crisis has been especially hard on countries that pursued neoliberal policies and emphasized market mechanisms such as the United States. Within individual countries, the most affected were those with low-income and limited access to healthcare. Similarly, among ASEAN Member States (AMS), where governments played a bigger role, such as in Thailand and Vietnam, the number of infections and deaths were kept low. But in countries where government responses were relatively less efficient, such as in the Philippines and Indonesia, there were over 350,000 confirmed cases and more than 10,000 deaths as of October 20.
Taking a step back to pre-COVID-19, we can see two important phenomena taking place in the ASEAN economy. One is that for the past 10 years, major ASEAN countries have been caught in the middle-income trap as a result of declining export competitiveness of their manufacturing sector. ASEAN is, no doubt, a major production base today. However, as globalization created oligopolies in the global electronics and automobiles industries, ASEAN economies have become largely dependent on such multinational companies for the development of these industries. Meanwhile, the region’s light industries faced tough competition against China’s overwhelming production capacity. The second phenomenon is the impact of US-China tensions and trade conflict on the ASEAN economy. Some multinational corporations are relocating their production facilities to the ASEAN region in response to the US-China trade war. At the same time, China is also increasing its investment in ASEAN as a potential alternative market.
It is in this context that the COVID-19 broke out, shrinking ASEAN’s exports and discouraging investments by multinational companies. To make things worse, the world-wide imposition of travel restrictions inflicted tremendous damage on countries like Thailand, the Philippines, and Cambodia that are heavily dependent on the tourism sector for foreign exchange earnings and job creation. As a result, all countries in ASEAN-both those with high number of infections and those that were successful in containing the spread-are experiencing economic downturns.
The governments of the AMS have been expanding fiscal spending in an attempt to prevent weakening of corporates and financial sectors from sluggish trade and investment. However, as production continued to decline and unemployment continued to rise, the economy deteriorated rapidly. According to a report published by the Asian Development Bank (ADB) in September 2020, the GDP of the AMS are forecast to decrease in 2020 compared to the previous year. The ADB also projected that the region’s major economies would record negative growth: Indonesia -1.0%, Malaysia -5.0%, the Philippines -7.3%, and Thailand -8.0%. Vietnam will be able to manage positive growth, but the rate will drop from 7.0% in 2019 to 1.8%. Overall, the AMS will record relatively high growth rates in 2021 mainly on the back of a low base effect. But, even then, the economies of the Philippines, Singapore and Thailand will find it difficult to recover to the 2019 levels.
Meanwhile, the COVID-19 will also exacerbate the socio-economic divide in societies. Because the manufacturing sector was unable to create many new jobs in countries like Indonesia, the Philippines and Thailand, many people continue to work in the informal sectors. As the effects of the pandemic further marginalize the workers in the informal sectors, societies are becoming increasingly polarized which can lead to social and political unrest. Just like the calls for political reform in Thailand, there will be more and more demand for change to address the socio-economic gap. And as societies become increasingly restless, this will, in turn, have a negative impact on the economy.