Key Takeaways

Two years after the coronavirus disease (COVID-19) pandemic began, economies across Southeast Asia are slowly recovering, though growth remains uneven and volatile, according to the Asian Development Bank’s (ADB) new report, Southeast Asia Rising from the Pandemic

The report’s author, Southeast Asia Regional Department Senior Economist James Villafuerte, unpacks the impact of the pandemic on Southeast Asian economies and the prospects for an inclusive, sustainable economic recovery.

James Villafuerte
James Villafuerte is a senior economist at the Regional Cooperation and Operations Coordination Division of ADB’s Southeast Asia Regional Department.

Southeast Asia is entering its third year of the pandemic, which led to lockdowns to minimize travel to prevent the spread of COVID-19. Is the region recovering from the pandemic?

The region is beginning to recover. Mobility around retail and recreational areas rose more than 160% in the two years ending in February 2022. Manufacturing activities in all countries are expanding. We expect Southeast Asia to post a growth rate of 5.1% in gross domestic product (GDP) in 2022, up from the estimated 3.1% in 2021 and the 4.0% contraction suffered in 2020. The recovery is expected to be stronger for economies with widespread adoption of technologies, resilient merchandise exports, large remittances from overseas workers, or high vaccination rates. On the other hand, economies with narrow growth engines, a large informal sector, limited fiscal space, low vaccination rates, and those which rely mainly on hospitality and tourism for jobs and economic expansion could still struggle.

Despite brightening prospects, the region’s average output level is expected to remain at least 10% below the level we expect in a scenario without COVID-19. Growth could drop by 0.8 percentage points if the more contagious Omicron variant or other emerging variants reduce economic activity in at least two quarters in 2022.

What should Southeast Asian governments watch out for as they seek to revive their economies?

The region’s economic growth faces several global headwinds, including widespread unemployment, loss of human life, and weak investment prospects. The expected tightening of global interest rates, led by the United States, could further weaken the outlook for global economic recovery.

In addition, climate change is causing more frequent and costly extreme weather and natural hazards. The Russian invasion of Ukraine also poses risks to the economic outlook for developing Asia and the Pacific.

How has COVID-19 affected the quality of life in Southeast Asian countries?

The pandemic has worsened poverty, inequality, and unemployment in the region. Inequality could persist for generations, as many unemployed workers have lost skills and will be unable to find work easily, despite the economic recovery.

The number of people in extreme poverty, or those living on less than $1.9 per day, rose by 5.4 million across Southeast Asia in 2020, compared with a scenario without COVID-19. The pandemic may have pushed 4.7 million into extreme poverty in 2021, compared with the 2020 no-COVID-19 baseline.

An estimated 9.3 million people lost their jobs in 2021, especially unskilled workers and female workers in the urban retail sector or the informal sector, as well as small businesses with limited capability to go online.

At a textile garment factory in Phnom Penh, Cambodia, garment worker Thong Chen, 28, goes back to work after vaccination. Photo: ADB

How do you see Southeast Asia’s economic recovery taking shape?

In much of Southeast Asia, there is a genuine desire among governments to improve national health systems, strengthen business competitiveness, invest in smart and clean infrastructure to boost growth, and adopt technology and innovation to promote a green economic recovery.

We estimate that growth in the region could be 1.5 percentage points higher if health investment in the region comes close to the global average of 4.8% of GDP. Right now, in most countries in the region, the share of health expenditure is less than half of global average.

What should Southeast Asian governments focus on as the region shifts to a recovery path?

Going forward, we recommend that countries pursue structural reforms to boost competitiveness and productivity. That can include simplifying business procedures, reducing trade barriers, and encouraging small enterprises to adopt new technologies. It can also include skills training to help workers address widespread disruptions to the labor market and the relocation of jobs across sectors. Governments should maintain fiscal prudence to reduce public deficits and debts and modernize tax administration to enhance efficiency and broaden the tax base.