The Asean + 3 Macroeconomic Review Office (AMRO) has slashed its 2020 growth forecast for Asean + 3 nations to 0%, from its previous prediction of 2%.

The downgrade follows the cracks and uncertainty from the Covid-19 health-turned-economic crisis, said the macroeconomic watchdog which monitors Asean, China, Japan and Korea.

“Regional growth is expected to slow sharply this year, from 4.8% in 2019, to 0% in 2020 before rebounding strongly in 2021,” noted AMRO’s chief economist Hoe Khor Ee in a virtual presentation of its latest forecast on August 6. “We expect a gradual U-shaped recovery in the Asean + 3 region, led by China”.

Khor and his team expect a strong rebound in regional growth to 6.0% in 2021 – ahead of the 5.0% it predicted in March.

Meanwhile, the Asean bloc is slated to log a contraction of 2.3%, before rebounding with a 5.7% expansion in 2021.

The latest growth projections are based on data as of August 6, and assume that efforts adopted to contain the spread of coronavirus infections are effective on both a global and regional scale.

“Encouragingly, the pandemic has been relatively well contained in the region and authorities have begun to gradually open up their economies,” AMRO said.

“Recent indicators show significant improvements in production and trade for some, while high-frequency indicators of people movement suggest that activity within the region has been gradually recovering in recent weeks as containment measures are eased”.

Countries have been establishing travel bubbles to facilitate the movement of people. For instance, Singapore and China have reopened their borders for essential business and official trips. 

Since June 8, the arrangement has commenced between Singapore and the eight Chinese provinces of Guangdong, Jiangsu and Zhejiang, as well as Shanghai, Tianjin, and Chongqing – three cities with provincial status within China’s elaborate hierarchy.

Closer to home, Singapore and Malaysia will also allow bilateral travel for work and official purposes come August 10. Travel – save the shipment of goods – has been halted for over four months after land crossings between the neighbours were halted since Malaysia’s movement control order took effect in mid-March.

While this spells good news for economies, AMRO cautions that it may bring a new wave of Covid-19 infections.

"The resurgence in infections in some parts of the region and elsewhere have heightened caution about another spate of lockdowns, which the Asean + 3 economies can ill-afford, even though most still have some fiscal and monetary space to provide support if needed” the watchdog notes.

The biggest challenge comes from balancing the trade-off between easing restrictions to bolster economic growth and risking another surge of infections. “Managing the exit from the raft of pandemic policies will be the key to regional financial stability,” explains Li Lian Ong, AMRO’s head and lead specialist for financial surveillance. 

To this end, 2020 does not look like a bright year for the Asean + 3 region. Several countries, such as Thailand (-7.8%), Hong Kong (-7.0%), Japan (-5.4%), the Philippines (-3.8%), Malaysia (-3.2%) and Indonesia (-0.8%) are looking at negative growth this year, AMRO predicts.

Singapore has not been spared and is looking at a 6% contraction this year – giving it one of the biggest growth setbacks this year. Its 2Q20 GDP ended June plunged an eye-popping 41.2% q-o-q and 12.6% y-o-y due to the circuit breaker measures in April and May.

Official estimates expect the city state to log a contraction between 4% and 7% in 2020.

AMRO meanwhile, sees a 7% rebound in Singapore’s economy next year given its status as a high-growth economy among the Asean + 3 countries.

Others in this category include Vietnam (+3.1%), China (+2.3%), Brunei (+1.6%) and Myanmar (+1.1%) - the only five economies likely to see growth this year.