The Asean + 3 Macroeconomic Review Office (AMRO) has slashed its 2021 growth forecast for Asean + 3 nations to 6.1%, from its previous 6.7% forecast.
The macroeconomic watchdog which monitors Asean, Japan, China and Korea, says the downgrade follows the flat growth seen in the region in 2020.
The Asean region, in particular is pencilled to see a slower growth rate of 2.7% this year, no thanks to the recurring new waves of Covid-19 infections and the re-tightening of containment measures to curb the spread.
Conversely, AMRO points out that other economies in the region have been seeing some sort of a recovery.
China for one, is seeing growth prospects from the vaccination of two-thirds of its population and effective Covid-19 containment measures. These have in turn, allowed the Chinese domestic economy to open up quickly, AMRO’s report notes.
See: Asean + 3 region to offer strong investment opportunities for global value chains: AMRO
“The pandemic has been very uneven in terms of impact and recovery,” AMRO’s chief economist Khor Hoe Ee noted in a briefing on Oct 7.
The difference in the impact of the pandemic on the various countries is dependent on the structure of its econom.
"By and large, what we're seeing is that the Plus-3 economies have done well, especially China, in terms of containing the pandemic and we expect the Plus-3 economies to grow quite fast compared with Asean countries which were hit quite badly by this last wave of the pandemic," explains Khor.
"But even among the Asean countries, because of the diverse nature of the economy, they've been hit differently. So not surprising, when they recover, the speed of recovery will also vary across the region,” he adds.
Going forward, Khor stresses that the vaccination rates would play a key role in determining how quickly economies will recover.
As more people get vaccinated, most countries would be able to achieve a certain level of herd immunity and open up more activities. “And because of that, the economy will be able to bounce back quite well,” muses Khor.
AMRO is expecting the Asean + 3 region to grow by 5%. This will also bring a problem: a projected rise in the region’s inflation rate to 2.9%, from 2.4% this year.
Asean can expect a stronger expansion of 5.8% next year. The region’s inflation level is also slated to rise by 3.5% in 2022, from 3% this year.
As countries look to wean off policy support, AMRO cautions that there is a fine line between preserving the remaining policy space and supporting a rebound.
"Policy support cannot go on forever, which is why governments need to manage the infection and ensure that the economic recovery becomes entrenched. Otherwise, we're going to see prolonged weak economic activity that will spill over to businesses and households, and eventually to the financial system,” warns Ong Li Lian, group head and lead specialist at AMRO.
Her comments follow rising concerns over the possibly sharper-than-expected tightening of monetary conditions in the US.
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Such a move will potentially increase volatility in the region and raise domestic interest rates at a time when financial conditions should be kept as accommodating as possible, says Ong.
“At some point, if this is not reversed or halted, debt sustainability could become a concern," she reiterates.
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