What lies ahead for South and Southeast Asia's economies in 2021?

By Lee Kah Whye
Singapore, January 4 : As we welcome 2021, what can we expect from regional economies in the new year?
We just left 2020, a year many wished was a bad dream. With a once-in-a-century health crisis sweeping across the world, it was one of the worst years in recent memories in more ways than one. The crisis tested each economy's resilience of the countries and forced political and business leaders to lead from the front. Governments introduced an unprecedented raft of fiscal measures to help avert further economic damage and implemented various support measures to reduce suffering by its populations. Business trends were accelerated, especially those that facilitated safe distancing, and this necessitated agility and creativity from businesses. It made champions of those that succeeded and unfortunately resulted in the collapse of those that were unable to adapt.
Vaccines for the Covid-19 pandemic were rushed out in record time but their long-term efficacy is unknown as their urgent need limited the ability to conduct lengthier trials and tests. Experts caution that even if the vaccines prove effective, it will take a while, perhaps until the end of 2021, before the virus comes under control globally. It will just be one tool in the effort to fight the pandemic. Cases in each country across the world needs to be very much lower before life can go back to something resembling normalcy.
To a certain degree, how each country's economy performed in 2020 and is expected to do in 2021 is a reflection of how they handled the pandemic. Without effective control of the virus, normal business activities cannot resume. Consumers will not feel safe to visit shops and restaurants as they had done in the past. Some businesses will also have to continue to accommodate health precautions as they operate, hindering productivity.
It is, therefore, no surprise that Vietnam, which was able to control the virus at a relatively low human and economic cost, appears to be the shining economy among Southeast Asian countries. Based on World Bank data, its GDP is expected to grow 2.8 per cent in 2020 and projected expand another 6.8 per cent in 2021 for a net growth of over 9.6 per cent in the period from 2020 to 2021.

In contrast, all other major economies in Southeast Asia are expected to post negative GDP growth in 2020. The tourism-dependent economy of Thailand appears to be most impacted by COVID-19 economically. The Thai government estimated in 2019 that tourism accounts for 20 per cent of its GDP and is a major creator of jobs. This together with high private-sector debt and political uncertainty has resulted in a slower recovery than most other countries. The World Bank projects that Thailand will have a net GDP growth of negative 3.4 per cent for 2020 and 2021. It is not likely to be able to restore its economic activity to 2019 levels till 2022. Singapore is in a similar situation with its economy expected to contract 6 per cent in 2020 and expand 4 per cent in 2021.
Singapore is the only one with what is considered a mature and developed economy among those countries mentioned in this article. It was already growing at a slower rate plus its economy is very much reliant on external trade with local economic activity unable to sustain its usual growth trajectory.
Based on World Bank data published in October, India's economy is expected to contract 9.6 per cent in the 2020-21 fiscal year which starts in March 2020. As such, the full economic impact caused by COVID-19 is reflected in the numbers and hence not a fair direct comparison with the economies of Southeast Asia. It is expected to recover to post a growth of 5.4 per cent in FY 2021-22.
However, due to positive news on the COVID-19 containment front and the possible resultant easing of movement restrictions, Moody's Investors Service in November raised its forecast for India's growth to negative 8.9 per cent for the calendar year 2020 from negative 9.6 per cent. The rating agency forecasts a growth of 8.6 per cent in 2021.
Pakistan's GDP is estimated to have declined 1.5 per cent in the fiscal year ending June 2020 and forecasted to grow 0.5 per cent in 2020-21 for net GDP loss of one per cent although this has many dependencies. In normal times, Pakistan enjoys of long-term economic expansion of four per cent.
The other Southeast Asian nation which will emerge from 2020 economically battered and not able to recover till 2022 is the Philippines. Based on World Bank's forecast published in October, its economy will shrink by 6.9 per cent in 2020, grow 5.3 per cent in 2021 for a net loss of 1.6 per cent. In November, World Bank revised this estimate downwards to negative 8.1 per cent in 2020 and 5.9 per cent growth in 2021 for a net negative figure of 2.2 per cent. They attributed this to "multiple shocks" that has buffeted the country from the Covid-19 health crisis, typhoons, and the global recession.
It is commonly believed that the stock market is a window into the future. Therefore, it is not a surprise that for 2020, the best performing market in Southeast Asia is Vietnam whose economy is also expected to expand the fastest. This is based on the Vietnam Ho Chi Minh Stock Index which tracks the performance of over 300 equities listed on the Ho Chi Min and Hanoi Stock Exchange in Vietnam. The index ended the year about 14.3 per cent higher than when it started. Most of the other major Southeast Asian indices closed the year down except Malaysia's KLCI which was up about one per cent. Singapore's Straits Times Index was the worst performing closing the year down almost 12.2 per cent.
The Indian financial market was surprising resilient with the SENSEX posting a gain of over 15 per cent in 2020 which is even higher than Vietnam's. With events of 2021 still up in the air, and with India's economic activity as well as the course and duration of the pandemic hard to predict, could the market be betting that the economy will outperform economists' expectations in 2021?