Reeling recovery predicted for ASEAN

Prospects for Southeast Asia's economic recovery remain uncertain as the COVID-19 pandemic is expected to weigh on regional growth.

After a yearlong slump, three biggest economies of the Association of Southeast Asian Nations, or ASEAN－Indonesia, Thailand and Malaysia－have posted positive growth rates in the second quarter. The Philippines, Vietnam and Singapore have likewise expanded during the same period.

Throughout ASEAN, authorities are now battling the more infectious Delta variant and are depending on foreign vaccines to support their mass inoculation programs. These will allow them to gradually lift lockdown measures, ease the strain on their public health systems and boost domestic consumption.

Thailand's GDP rose by 7.5 percent in the second quarter of this year, according to an Aug 16 report from its state economic planning agency National Economic and Social Development Council. The figure beat market estimates of 6.5 percent.

Indonesia's GDP rose by 7.07 percent－its strongest performance since 2004, and Malaysian GDP grew by 16.1 percent.

Despite the rosy figures, analysts still have a less sanguine outlook on regional recovery.

"ASEAN broadly remains in a battle with the more contagious Delta variant," said economist Chua Han Teng of Singapore's DBS Bank. "Movement restrictions imposed to curb the virus are likely to weigh on economic activity for the time being,"

Krystal Tan, an economist at ANZ Bank in Melbourne, said growth outlook for the region is "very challenging given the virus resurgence, tightened restrictions and low vaccine coverage".

Tan expects Thailand's economy in particular to struggle more in the third quarter given the worsening pandemic and delayed recovery prospects for the tourism sector. The travel and tourism industry accounts for 20 percent of the country's GDP.

Thailand's NESDC has slashed its 2021 growth projection to a range of 0.7 to 1.2 percent from the previous 1.5 to 2.5 percent forecast. This is largely due to a new COVID-19 wave that has seen total infections spike to over 900,000 as of Aug 16, more than triple the number of cases from the end of June. The government has also decided to extend lockdown measures until the end of August.

Indonesia has extended movement restrictions until next Monday as daily COVID-19 cases remain high. As of Friday, the virus has infected more than 3.93 million and killed more than 122,600 people in Indonesia, according to data from the World Health Organization.

Bank Negara Malaysia has downgraded this year's GDP forecast to between 3 and 4 percent from the previous forecast of between 6 and 7.5 percent. The country's central bank said the downgrade is due to the reimposition of nationwide containment measures.

Low base effect

Analysts said that ASEAN's second-quarter growth is also mostly due to the low base effect and it is not indicative of a long-term trend.

"The year-on-year figures may look great, but they are a horrible distortion (of the current situation)," said Rob Carnell, head of research and chief economist for Asia-Pacific at Dutch investment bank ING.

Carnell said second-quarter GDP figures in 2021 are compared against the second quarter of 2020, which is a period of maximum contraction during the initial phase of the pandemic.

"It would be miraculous if the year-on-year figures were not strongly positive," he said.

It is a view that ANZ's Tan agrees as well. "The positive growth rates in the second quarter were largely driven by low base effects from the first wave of the pandemic in 2020 and will not be sustainable as these effects fade," she said.

Tan cited Malaysia's GDP as an example. Though the country posted double-digit growth on a year-on-year basis, its GDP contracted when measured on a per quarter basis. Malaysia's second quarter GDP contracted by 1.9 percent compared with the first quarter of 2021.

Malaysia is reeling from one of the worst COVID-19 outbreaks in Asia, with 22,948 new cases detected on Thursday, according to figures from its health ministry.

Yang Han in Hong Kong contributed to this story.