ASEAN economies to suffer from shutdowns

As the World Health Organization (WHO) called on countries in Southeast Asia to urgently scale-up aggressive measures to combat the outbreak of coronavirus, the economic situation of one of the world’s fastest growing regions is deteriorating. 

There is little to no doubt now that Thailand’s economy, the second biggest in ASEAN, will have less than 1 per cent growth in 2020 from the impact of the outbreak. The University of the Thai Chamber of Commerce (UTCC) is already seeing an economic recession of at least 0.5 per cent for Thailand this year. 

However, the Thai economy is certainly not the only one that is suffering from this pandemic. The Asian Development Bank (ADB) said on March 6 that the outbreak “will have a significant impact on developing Asian economies”. 

ADB explored a range of scenarios. In the moderate scenario, where precautionary behaviours and travel restrictions would start easing after April, developing Asia, excluding China, would lose US$22.3 billion, or 0.24 per cent of its GDP.

For the worst-case scenario, where travel restrictions and the decline in domestic demand lasted more than six months, developing Asia, excluding China, could lose up to 0.46 per cent of its GDP, or around US$42.2 billion.

For Thailand, the UTCC now expects that impacts from the outbreak would take away around 600-700 billion baht from the Thai economy with its GDP contracting by 0.5-1 per cent in the first half of 2020, and by 0.5 per cent for the full-year calculation.

Amid talks of a complete shutdown of the country to prevent further outbreak, UTCC president Thanavath Phonvichai said on Thursday that such a move would cost businesses around 8 billion baht per day or 240 billion baht per month. 

Of that, around 180 billion baht of the loss will come from tourists not being able to enter the country. The rest will mostly be because of the lack of border trade, which would account for around 60 billion baht per month or 2 billion baht per day. 

Thailand’s Ministry of Public Health confirmed on Friday 50 more coronavirus cases, bringing the total number of cases in the country to 322, a dramatic increase from around 40 cases just last month. 

Regional overview 

Malaysia and the Philippines have already resorted to lockdowns, including travel restrictions nationwide, the closure of non-essential services, and banning gatherings. Thailand and Vietnam have imposed a partial lockdown, closing schools and entertainment venues. Indonesia has imposed the least restrictions so far.

Maybank Kim Eng Securities expect Singapore and Thailand to go into recession in 2020 with a contraction of 0.3 and 0.5 per cent, respectively this year. The rest of ASEAN-5, including Malaysia, Indonesia, and the Philippines may see subpar growth rates last seen during the global 2007-08 financial crisis. 

The securities firm expects ASEAN central banks to continue cutting policy rates by another 50 basis points in Malaysia, Indonesia, Thailand, and the Philippines. Thailand’s policy interest rate is already at a historic low of 1 per cent following a surprise 25 basis point cut in February. The Bank of Thailand’s Monetary Policy Committee is scheduled to meet on March 25.  


Maybank Kim Eng Securities said the lockdowns that are being applied by many countries in the region will broaden the range of sectors impacted by the outbreak. Both external-oriented sectors (such as exports, oil and gas, hospitality) along with “non-essential” domestic services (such as the retail, recreation, and food and beverage sectors) will not escape this reality. 

The firm said the current shocks, including the outbreak, the huge drop in oil prices, and the increasing lockdowns, will affect each country differently. According to the firm’s own ranking of major ASEAN economies in terms of resilience to the current shocks, Malaysia is the most vulnerable, followed by Thailand, Indonesia, the Philippines, Singapore, and Vietnam. 

They explained that leverage ratios are high for Malaysia in terms of household debt, external debt, and public debt. The same goes for Thailand concerning household debt, albeit to a lesser degree, and for Vietnam with public debt. Both Indonesia and the Philippines, however, will run twin deficits including fiscal and current accounts. 

Exposure to the most vulnerable sectors, including the tourism and transport sectors, ranks highest for Thailand at 11.9 per cent, and 8.3 per cent for Singapore. With oil and gas prices collapsing, Malaysia is the most exposed, with the oil and gas sector at 11 per cent of the GDP. In terms of loans, Thailand has the highest business loan exposure to the wholesale and retail trade, transport, and hotel sectors. The Philippines has the lowest in comparison.

Fiscal space

Maybank Kim Eng Securities said ASEAN governments are introducing fiscal support measures but some have more fiscal space than others. For example, Singapore and Thailand have more space than Malaysia or Indonesia. 

High public debt and fiscal deficits, combined with self-imposed limits, will constrain the fiscal space for Malaysia and Indonesia. Malaysia’s public debt is already near the ceiling, while Indonesia’s fiscal deficit is limited at 3 per cent of the GDP. 

Thailand and the Philippines have lower fiscal debt, although the Philippines may be somewhat constrained by a twin deficit. Collapsing oil prices will impact Malaysia’s fiscal revenue, as about a quarter of that revenue is coming from oil and gas related businesses, including royalties and state-owned Petronas. 

Singapore has the most space and will be releasing a second fiscal package, which can draw on its surplus funds worth 7.7 billion Singapore dollars and their ample reserves, the firm added.


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