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1. Rising COVID-19 infections across and globe and ASEAN
The rising number of COVID-19 infections have prompted the governments of the Philippines, Malaysia, Thailand, Indonesia and Singapore to implement partial lockdowns. The total number of infections globally surpassed 3.7 million while the number of deaths exceeded 250,000 as of 8 May 20201. As of the same date, the number of COVID-19 cases in ASEAN are as follows:
2. Economic fallout and grim growth projections
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- a) In response to the rising cases, many countries have imposed measures such as restricting air travel, postponing major events including sporting events, and the closing of non-essential businesses. This led to severe economic tsunamis around the world.
- The United Nations Conference on Trade and Development (UNCTAD) estimates a slowdown in the global economy to below 2.0% in 2020 and will probably cost around US$1 trillion.2
- The World Trade Organization (WTO) estimates global trade is set to fall by between 13% and 32% in 2020 with recovery expected in 2021 but dependent upon the duration of the pandemic and effectiveness of policy responses.3
- Almost all regions will experience double-digit declines in trade volumes in 2020, with exports from North America and Asia hit the hardest.4
- Preliminary data released in mid-March by the National Bureau of Statistics of China showed a decline of 13.5% in industrial output during the January-February 2020 period compared to a year earlier.5
- During the same period, retail sales fell 20.5%.6
- Fixed-asset investments declined 24.5%.7
- b) In Southeast Asia, the economic impact from COVID-19 is already being felt, particularly by countries that are heavily dependent on trade and tourism.
- At the end of March, the Ministry of Trade and Industry (MTI) cut its 2020 growth forecast to a range of -4.0% to -1.0%8, from an earlier estimate of -0.5% to 1.5% it announced in February.9
- Advance estimates from MTI showed Singapore’s economy contracted 2.2% year-on-year in the first quarter of 2020.10
- Hotels were only half-filled in February 2020, resulting in a 40% decline in room revenues. According to the Singapore Tourism Board (STB), the standard average occupancy rate in February was 51.0%, a sharp decline from 83.1% in January. In contrast, the average occupancy rate was 88.5% in February 2019.11 The drop in demand led to issues with profitability and cash flow sustainability for many businesses.
- In March, Thailand‘s central bank slashed the country’s GDP growth for 2020 from an earlier estimate of 2.8% to a contraction of 5.3%, noting that the forecast did not, however, take into account monetary and fiscal policy to support economic growth.12
- The country’s foreign tourist arrivals fell by 42.8% from a year earlier to 2.06 million in February 2020. The number of Chinese tourists plunged as much as 85% year-on-year in February as China’s government restricted travel and locked down some cities.13
- Indonesia’s Finance Minister Sri Mulyani Indrawati said on 1 April that its economy is projected to grow 2.3% in 2020, revised from the previous estimate of 5.7%.14
- Thousands of workers have been laid-off in Central Java (24,249), West Java (5,047) and North Sulawesi (1,275).15
- Data from a digital payment startup revealed that the food and beverage industry suffered a significant decrease in daily earnings, with Surabaya in East Java and Bali being the two cities with the biggest fall in daily earnings at 25% and 18 % respectively.16
- Vietnam’s GDP expanded by 3.82% in the first quarter of 2020, its lowest in 10 years, according to the General Statistics Office. Overall, all sectors expanded at a lower pace due to stagnation in major economies and disruptions to global supply and demand brought upon by the pandemic.17
- A survey conducted by the Vietnam Chamber of Commerce and Industry (VCCI) revealed that 35,000 businesses stopped operations in the first quarter of 2020 with the COVID-19 pandemic cited as the main reason. 18
- More than 75% of the companies surveyed by VCCI said they would need to reduce their workforce, 10% said they would need to fire half of their workforce while 1% of the companies surveyed said they intended to increase their workforce. This could result in the loss of millions of jobs in the coming months.19
- Da Nang City saw nearly 1,000 businesses either dissolved or stopped operations due to difficulties related to COVID-19 in the first quarter of 2020 while its tourism sector looks set to lose an estimated US$870 million and 35,000 jobs.20
- In February 2020, Vietnam’s airlines recorded a 13.7% decline year-on-year in the number of passengers.21
- Malaysia’s central bank projected in April the country’s GDP for 2020 to stand between -2.0% to 0.5%.22
- In March, the government estimated its GDP for the January-February 2020 period to contract between 0.8%-1.2%, with the tourism, transport sectors and SMEs to be the most affected.23
- According to the Malaysian Aviation Commission (MAVCOM), airlines operating in the country saw the cancellation of around 13.6 million seats, equivalent to 12.3% of annual scheduled operations.24
- The Bangko Sentral ng Pilipinas (BSP), Central Bank of the Philippines, projects that the Philippine economy to go into a technical recession in 2020, which means the country will experience negative growth for at least two quarters25, while Finance Secretary Carlos Dominguez III estimates that the country’s GDP growth for 2020 to fall between 0% to -1%.26
- According to the National Economic and Development Authority (NEDA), the pandemic would likely cut the country’s GDP by 0.5 to 1.0 percentage point and cause an estimated 30,000 to 60,000 job losses.27
- Cambodia’s real economic growth for 2020 is projected to slow to 2.5%, according to the World Bank. The economic shock caused by the COVID-19 pandemic has significantly affected the country’s economy in all its major sectors: agriculture, tourism, garments, textiles and construction.28
- Tourist arrivals in the first two months of 2020 decreased by 15%. In 2019, the kingdom welcomed 6.6 million tourists.29
- Up to 10 factories file for temporary suspension at the beginning of March due to the disruption in the supply of raw materials from China.30
- 37 factories have either laid off workers or stopped operations either temporarily or permanently as of 22 March 2020 and as a result, nearly 17,000 workers in the Yangon region are out of jobs.31
- Tourist arrivals at its three international airports fell 36% in February according to its Department of Civil Aviation.
- The number of Chinese tourists, particularly, saw a drastic drop from the usual overage of 36,000 per week to just 2,000 per week.32
- c) Projections by the Asian Development Bank (ADB) made in early March (Figure 1.2)33 and ASEAN+3 Macroeconomic Research Office (AMRO) mid-February (Figure 1.3)34 show that the economic impact from COVID-19 will hit some countries harder than others.
Estimated impact of COVID-19 on the GDP of ASEAN economies
- Cambodia is estimated to experience a cut in economic growth of 1.59%, the highest among all the ASEAN countries included in the forecast.
- This is followed by Singapore and Thailand which are forecasted to experience economic growth cuts ranging between -1.11% and -0.57%.35
- On the other hand, countries like the Philippines and Indonesia are estimated to experience a cut in economic growth ranging in between -0.30% and -0.09%.
- The ADB forecast also shows Laos and Brunei with a cut in economic growth of -0.22% and -0.21% respectively.
ASEAN countries estimated to be hit hard by the COVID-19 pandemic are those with large tourism sectors that had a high share of tourists from China and had a large proportion of goods exported to China.
- In 2018, the share of goods exports to China made up more than a quarter of Vietnam’s GDP and more than 10% for Malaysia.
- Singapore’s economic growth is projected to decrease by 0.72 percentage point, followed by Thailand (-0.43) and Malaysia (-0.33) due to the impact of COVID-19.
- Indonesia’s economic growth is the least impacted with a projected decrease of -0.09 percentage point due to its greater domestic-demand orientation.
- d) A more recent projection by the World Bank (Figure 1.4)36 showed the following economic impact for selected countries in East Asia.
Figure 1.4 shows three scenarios:
- Growth achieved in 2019
- Baseline: which refers to a scenario of severe growth slowdown followed by a strong recovery
- Lower case: which refers to a scenario of a deeper contraction followed by a sluggish recovery.
- The East Asia and Pacific region experienced a 5.8% growth in 2019, which is expected to decline to 2.1% under a baseline scenario and contract -0.5% under the lower case scenario.
- Most of the ASEAN countries shown in the chart follows this trend; some still projected to experience strong growth while others are estimated to suffer significant contractions under the lower case scenario.
- China is also projected to mirror the trend as well, with economic growth falling to 2.3% under baseline and 0.1% under lower case.
- In the baseline scenario: Vietnam, Laos, the Philippines and Myanmar register economic growth of between 3.0%-4.9%, the highest among ASEAN countries listed while Malaysia and Thailand are the only ASEAN countries in the chart that are expected to contract at -0.1% and -3.0%, respectively.
- Lower case scenario: All ASEAN countries in the chart except Cambodia, Vietnam and Laos, will see their economies contract with Malaysia and Thailand experiencing the deepest contraction of -4.6% and -5.0% respectively.
- Under the lower case scenario: Indonesia fares well during the baseline scenario with a 2.1% growth but contracts by -3.5%.
- Under both scenarios:
- Vietnam, Cambodia, Malaysia, and Thailand are likely to be affected by the fall in external demand for manufacturing exports and the disruption in the supply chains into which they are integrated.
- The decline in tourism revenues will also affect countries in which tourism revenues constitute more than 10% of their GDP in Cambodia, Laos, Malaysia, the Philippines, and Thailand.
- The plunge in commodity prices will affect Indonesia, Laos, Malaysia, Myanmar, Thailand and Vietnam.
- The Philippines, with its large population of overseas foreign workers (OFWs) will also be affected by the decline in remittances.
- e) In early March, UN’s trade and development agency, UN Conference on Trade and Development (UNCTAD) projected that a “doomsday scenario” as a result of the COVID-19 pandemic will result in 0.5% world economic growth, and will cost the world economy US$2 trillion in 2020.37
- f) According to Kristalina Georgieva, managing director of the International Monetary Fund (IMF), the world is already in a recession, and it could turn out to be as bad or worse than the Global Financial Crisis in 2009. The IMF, however, projects a recovery in 2021 if the “world succeeds in containing the virus everywhere and prevents liquidity problems from becoming a solvency issue.38
3. Fiscal Measures
To counter the severe economic effects of the COVID-19 outbreak that is already being felt on the economy, several ASEAN countries have come up with fiscal measures including stimulus packages focusing on several priority areas. It is estimated that as of 19 March, fiscal support from governments around the world totaled US$1.9 trillion.39
ASEAN Countries’ Fiscal Measures
Figure 1.6: Intensity of ASEAN Countries’ Fiscal Measures by Monetary Value (US$)
As of 8 May 2020, the absolute value of stimulus packages allocated by ASEAN countries is as the following:
Thailand leads the pack with US$74 billion, followed by Malaysia (US$60 billion), Singapore (US$44 billion), Indonesia (US$27 billion), Vietnam (US$12.2 billion), the Philippines (US$3.9 billion), Cambodia (US$2 billion), Brunei (US$313 million) and Myanmar (US$360 million) in stimulus package allocation.
Table 1.1: Fiscal measures implemented by ASEAN countries
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Major Economies’ Fiscal Measures
Table 1.2: Fiscal measures implemented by major economies
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Largest fiscal stimulus since the Global Financial Crisis for the G20
Most economies around the world have announced some form of stimulus package or fiscal measures to see them through the economic fallout caused by COVID-19.
- As of 26 March 2020, the G20 reported fiscal measures totalling some US$5 trillion, equivalent to over 6% of the global GDP.40 This far exceeds the size of the fiscal stimulus allocated for the 2008-2009 economic crisis which amounted to US$2 trillion, or 1.4% of the world GDP at the time.41
- An evaluation of countries’ fiscal measures implemented during the 2008-2009 economic crisis showed that those with larger stimulus packages (as a percent of GDP) performed relatively better in terms of GDP growth and employment recovery. However, past observation also revealed that a stimulus package needs to be timely, targeted and temporary for its implementation to be effective.42
Evolving fiscal measures by ASEAN governments – sustaining jobs, supporting businesses and strengthening healthcare
ASEAN countries have implemented travel restrictions and varying degrees of lockdowns in response to the pandemic, leading to a sharp decline in economic activity in the region.43 To counter the economic effects, ASEAN member states have all announced and put in place fiscal measures to cope with the economic impact of the COVID-19 outbreak.
Generally, most of the fiscal measures announced by ASEAN countries cover labour market measures, cash handouts to low-income individuals and households, tax cuts and relief for businesses. Due to the unprecedented public health crisis affecting the economy, countries like Malaysia, Singapore, Indonesia and The Philippines have allocated a portion of their fiscal measures towards healthcare spend.
- a) Tourism sector grounded
The tourism industry was heavily affected by the decreasing number of tourists, particularly from China, which was the epicentre of the pandemic during the period of January-February 2020.44
Many ASEAN countries imposed travel restrictions to and from China which were later expanded to include other affected countries such as Japan and South Korea. Tourists from these countries made up a large share of tourist arrivals to ASEAN countries and the mass cancellations of flight tickets and hotel accommodations that ensued hit the tourism industry hard.45
Singapore, Malaysia and Indonesia’s earlier stimulus packages included several types of incentives for the industry.
- Singapore and Malaysia offered rental waivers46 or property tax rebates for hotels and tourism-related properties.47
- Indonesia channeled funding to airlines and travel agents that would allow them to provide discounted rates.48
- The Philippines allocated over half of its first stimulus announced in mid-March specifically for the tourism sector.49
- b) Cushioning the loss of employee income
As the pandemic progressed and more factories were shuttered, attention shifted to providing relief to employees that were forced to take no-pay leave and those relieved from their duties.
- Under the enhancements to its Jobs Support Scheme, Singapore allocated US$10.6 billion to provide 8% to 25% of co-funding towards a portion of the local employees’ salary.50
- Malaysia put aside US$1.36 billion as part of its three-month wage subsidy scheme for workers earning below US$919.51
- Thailand is providing US$1.37 billion worth in cash handouts to 3 million workers not covered by its social security system.52
- Some countries have also relaxed regulations that allow employers to defer pension contribution payments while some have even allowed employees to make withdrawals from their pension fund:
- Brunei has imposed a six-month deferment of pension contributions for eligible MSMEs.53
- Malaysia has allowed contributors to make monthly withdrawals of up to US$112.78 from their pension fund for 12 months.54
- c) Ensuring household sufficiency
Maintaining the consumers’ spending power is essential to keeping the economy running. The introduction of one-time or repeat cash assistance is a popular feature in most of the stimulus packages announced by ASEAN countries.
- Indonesia is allocating US$6.7 billion to strengthen its social security net which includes expanding its conditional cash handouts from 9.2 million households to 10 million households.55
- Aside from providing cash handouts to the lower-income group, Malaysia is also allocating US$2.3 billion for one-time cash handouts to the middle-income group,56 which makes up the other 40% of its population.
- In its second stimulus package, Singapore tripled its cash handout to its population for daily expenses.57
- Besides cash handouts, non-cash measures are also utilised to soften the impact of the economic slowdown. Indonesia increased its basic needs subsidies for 15.2 million households to 30% for six months.58 The republic also expanded non-cash food aid from 15.2 million recipients to 20 million recipients for nine months.59
- d) Relief for businesses
As one of the key contributors to GDP growth, the business sector has been adversely affected by the pandemic. Restrictions on movement and social distancing mean that labour supply, transport and travel are adversely affected. Trade has seen a steep decline particularly in sectors characterised by complex value chains such as electronics and automotive products. The services sector, on the other hand, has been hit hard by the closure of retail and hospitality establishments as a result of transports and travel restrictions.
i) Tax cuts
To ensure business survival, many countries moved to provide support in various forms to business owners. Most governments in ASEAN region moved to impose tax cuts, rebates or waivers in their respective relief packages:
- Thailand extended the deadline for corporate income tax filings to August and September 2020.60
- Singapore automatically deferred income tax payments for companies and the self-employed for three months. 61
- In Malaysia, income tax payment for SMEs have been postponed for three months from the beginning April 2020.62
- Indonesia brought forward a 3% reduction in corporate income tax that was initially planned for 2021.63
Moratoriums and restructuring of bank loans were implemented to provide financial relief to businesses and consumers:
- Indonesia has extended the loan payment deadlines for micro, small and medium-sized enterprises (MSMEs) by up to one year.64
- Malaysia’s central bank, Bank Negara Malaysia, announced an automatic six-month moratorium on all loan payments for SMEs and individuals beginning April 2020. 65
- The Philippines is providing US$55 million worth of zero-interest loans to small farmers and fisherfolk in addition to a one-year moratorium without interest on payments of outstanding loan obligations of small farmers and fisherfolk borrowers worth US$40 million.66
ii) Stabilising the cash flow
Despite the deferred tax period and moratorium, liquidity remains a tough issue for businesses. In the short term, most businesses still accrue overheads and operating expenses despite not being able to run business as usual. Stabilising cash flow became the most crucial measure by the governments.
- Although its previous two stimulus packages included relief for businesses, the Malaysian government announced an SME-focused stimulus package worth US$2.3 billion on 6 April 2020 with measures that include:
- A special grant totaling US$481 million (RM2.1 billion) for 700,000 eligible micro enterprises.
- The abolishment of a 2.0% interest rate for the US$114 million (RM500mil) Micro Credit Scheme.67
- Singapore specifically enhanced business’ access to credit, and allocated US$702 million for hard-hit sectors such as tourism and aviation.68 A separate US$247 million aviation support package was also introduced, consisting of landing and parking charges, rebates and rental relief for airlines, ground handlers and cargo agents.69
- Vietnam announced a US$11 billion credit package for businesses that includes restructuring of loan payments and reduction in interest rates and fees for companies affected by COVID-19.70
- Myanmar prioritised the garment and manufacturing sectors, hotel and tourism businesses, and locally-owned small and medium-sized enterprises to receive a loan with 1.0% interest rate for the duration of one year.71
- e) Fighting COVID-19 with a strong healthcare system
In order to contain the spread of COVID-19, governments are implementing transmissions control measures such as travel bans and lockdowns of varying degrees in order to “flatten the pandemic curve.” This goes hand-in-hand with measures to mitigate the related economic impact in order to “flatten the recession curve.” Countries like Singapore and South Korea learned from the 2003 SARS and 2015 MERS experience that early investments in infectious disease surveillance and response capacity can reduce the need to implement costly suppression measures.72 Several ASEAN countries have allocated significant amount of funding to boost its healthcare system:
- Malaysia allocated US$112.78 million to the Ministry of Health for the purchase of medical equipment, and US$22.56 million for the hiring of 2,000 staff on a contract basis to support the health sector in its stimulus measures announced on 23 March. On 27 March, it allocated another US$230 million to procure equipment and services including obtaining medical expertise from private healthcare services.
- Indonesia announced in its third stimulus package on 31 March, the allocation of US$4.6 billion for healthcare spending.
- The Philippines government announced on 16 March, US$44.8 million worth of additional funding for the purchase of test kits and to fund efforts to slow the spread of COVID-19.
- Although not included specifically in its stimulus packages, Singapore and Thailand channeled money towards COVID-19 treatment too.
- Singapore allocated US$560 million towards efforts to contain the COVID-19 outbreak, most of which went to frontline agencies and its Ministry of Health.73
- In Thailand, healthcare expenditure related to COVID-19 are covered under the country’s universal healthcare and in March, a US$107 million budget was sought from the contingency budget for COVID-19 treatment in the months remaining until the end of the fiscal year in October.74
5. Post-Pandemic Recovery
In the Special ASEAN Summit on Coronavirus Disease 2019 (COVID-19) held on 14 April 2020, ASEAN leaders reaffirmed its commitment to take collective action and coordinate policies in mitigating the economic and social impact from the pandemic and proposed the development of a post-pandemic recovery plan to share to restore ASEAN’s normal business and social activities, and prevent potential economic downturns.75 The economic ministers of all ASEAN countries should ensure the creation and implementation of the plan to ensure continued economic growth in the region.
In reality, ASEAN is still grappling with managing the COVID-19 health crisis, each at different stages in the pandemic. As of 20 April, Malaysia’s lead in the number of infection cases in the ASEAN region, has been surpassed by Indonesia, the Philippines and Singapore.
Indicatively, each ASEAN country will have different post-pandemic recovery strategies, depending on how well the pandemic is contained and hence affecting the extent of fiscal measures required for recovery. For now, only Singapore has a recovery plan in view while post-pandemic economic measures for many ASEAN member states remain to be seen.
Singapore has set aside US$1.3 billion for the eventual economic recovery post-COVID-19. Aside from helping businesses build long-term capabilities, the government will be matching US$0.70 (S$1) for every US$1.4 (S$2) raised by trade associations and chambers or business groups for qualifying initiatives.76
It is foreseeable that some member states which have announced substantive relief and stimulus measures may have to contend with budget deficits in 2020. Having sufficient foreign reserves would allow these countries to not depend on offshore borrowings. ASEAN countries need to be cautious of their budget deficits; Indonesia’s cap for its budget deficit was set at 3% of its GDP but with the third stimulus package, its budget deficit is expected to rise to 5.07% of its GDP.77
Wuhan in China, the initial epicentre of COVID-19 lifted its lockdown on 8 April after almost 11 weeks of lockdown. It is reported that the resumption of manufacturing activities in the city have resulted in the Purchasing Managers’ Index (PMI) rebounding to 52.0 by March 31st from a low of 35.7 in February 2020,78 indicating that with effective containment the reopening of the market is possible within three months.
Ultimately, in the absence of a vaccine, physical distancing would still define the new normal of “business as usual”. Long term relief for industries requiring more physical interaction such as travel, hospitality, tourism, retail, typically employing a substantial workforce, may need extended support from the government.
As for the MSMEs, if the pandemic lockdown prolongs, and unless market confidence is restored, many of the brick and mortar businesses will likely be wiped out. Unless these businesses are ready to migrate to online platforms with delivery service provided, these businesses will struggle to survive this pandemic tsunami. Equipping these businesses digitally in the shortest possible time would be the challenge for the ASEAN governments.
Supervisor: Hong Jukhee
Editorial Team: Aznita Ahmad Pharmy, Eleen Ooi Yi Ling, Nor Amirah Mohd Aminuddin