SINGAPORE, Oct 7 — The ASEAN+3 Macroeconomic Research Office (AMRO) has revised downwards the growth forecast for the region this year, but says the economies are gaining on their recovery and will post stronger growth in 2022.
In its ASEAN + 3 Regional Economic Outlook 2021 report released today, AMRO cited the downside risks foreshadowed in March in AMRO (2021), mainly in the form of disruptions caused by the COVID-19 Delta variant, as factor for the downward revision.
“Economic activity in the region is now projected to expand by an aggregate 6.1 percent in 2021, down from the 6.7 percent forecast earlier this year, after posting flat growth in 2020.
However, ASEAN+3 economies are gaining recovery momentum and the region as a whole is expected to grow strongly next year, by 5.0 percent. Inflation is projected to rise to 2.9 percent in 2022, from 2.4 percent this year.
While proactive fiscal and monetary policies have helped to temper the risks to financial stability identified in AMRO new risks have been added to the equation, the report said.
“With inflation reaching near 30-year highs in the United States, the spotlight has been placed squarely on
the US Federal Reserve’s (“Fed’s”) stance on monetary policy. In light of the 2013 “taper tantrum” experience, ASEAN+3 central banks are mindful of the risks to capital flows posed by any sudden shift in the Fed’s monetary policy stance. Rising corporate defaults, particularly of highly leveraged firms, could weaken investor sentiment and risk regional
contagion. Domestically, increasing price pressures could pose a separate headache for regional central banks, as they parse the factors currently driving producer and consumer prices.”
Nevertheless the risks posed by Covid-19 are still there, with the greater risk at this stage being the
continuing mutation of the virus into potentially vaccine-resistant strains (World Health
Organization 2021) that could have important implications for the economy, AMRO cautioned.
As policy space continues to narrow in the region, the rollout of vaccination programs—coupled with increasing realization about the endemic nature of the virus—could become a crucial game changer for growth
Faster vaccination rate will accelerate the endemic state and with this, the greater adeptness at targeting containment and support policies, is fuelling optimism and providing more clarity on what an “endemic new normal” could look like.
“The approval of new, and potentially more effective vaccines could boost global vaccination rates. At least
half of ASEAN+3 economies can achieve their vaccination target rates by end-2021. Consequently, border restrictions and physical distancing measures could be eased by the first quarter of 2022.
“Lockdowns would no longer be required to stem infection rates, easing supply bottlenecks and cost pressures on inflation. Economic scarring will largely be limited to sectors that have been affected to-date. The labor market will also gradually recover as firms pivot to new growth areas.
The report said the region has started adapting and learning to function within the more uncertain environment.
“The pandemic has altered the way businesses and consumers transact, accelerated digitalization, and led to the emergence of new business models and types of firms.”
It also noted that rising protection and immunity have allowed for the resumption of travel.
Nevertheless, it cautioned that any withdrawal of policy support needs to tread the fine line between preserving the
remaining policy space and supporting the rebound.
“Existing policy measures should be phased out in a gradual and well-communicated manner to avoid cliff effects.
“Targeted policy measures should continue to support the hard-hit sectors, minimize scarring effects that could lead to lasting inequalities and social inequity, and facilitate the transition to the new digital economy.”