The Impact of COVID-19 on ASEAN Economy
As strike on the real economy caused by COVID-19 reach a serious level, major international financial institutions, such as the IMF, estimates an economic recession and reverse growth comparable to that of the Great Depression. In early March, the OECD revised its outlook on global economic growth rate to decrease by 0.5%p from the previous 2.9%. Should the situation be prolonged, the organization projected that the rate could fall to 1.5%. The IMF released its most recent report on April 14, forecasting a gloomier future. The global growth rate is now expected to drop to -3%, while developed countries expect a growth rate of -6.1%, and emerging economies, including ASEAN member states, around -1%.
The impact of the COVID-19 on the economy is different from that of the past financial crises because efforts to end the virus are bound to limit economic activities themselves. In other words, measures to stimulate the economy that are aimed at reviving economic vitality and promoting consumption can only take effect after the COVID-19 situation is subdued to some extent. Thus, limitations seem inevitable as long as social distancing is maintained. IMF also stressed in its report that intensive spending on the healthcare sector should be a priority for effective control of the virus and rapid economic recovery thereafter.
Recording an annual growth rate of around 5% even amid the 2008 financial crisis and the recent US-China trade conflict, ASEAN has been considered the growth engine of the global economy. However, even in ASEAN, the economic impact of COVID-19 appears unavoidable. In Thailand, where tourism accounts for 21% of the total GDP (as of 2017), the growth outlook fell to -6.7% according to IMF. Even Vietnam, considered to have gained the most benefits from the US-China trade war spillover last year, is also expected to be significantly affected from the shrink in external demand and disruption in the global supply chain.
The following is a summary of the impact of COVID-19 on the ASEAN economy
■ COVID-19 and ASEAN Economy (Trade in Goods and Services)The COVID-19 crisis evidently demonstrates how countries today are deeply connected and interdependent. As China, which accounts for 15.7% of the world’s GDP, suffered a pre-emptive strike of the virus, followed by the US (24.2%), and the EU (22.1%), the world economy began to wobble. While the virus is still raging in many parts of the world, most economists expect it will take a considerable amount of time for the global economy to recover.
The WTO predicts that the global trade volume will drop about 13-32% in 2020 under the influence of COVID-19. ASEAN, which relies heavily on China and advanced markets for trade, has seen its exports to China, the US, and the EU (accounting for 50.3% of merchandise trade and 26.7% of exports) decline, raising concerns over yet another financial crisis. For oil exporters among ASEAN member countries, such as Brunei, reduction in income seems inevitable due to low oil prices. Moreover, the exchange rate soared in some Southeast Asian countries over the past few months as uncertainties caused by the pandemic accelerated capital outflow. In Indonesia, the exchange rate rose 19.8% from 13,662 Rupiah per USD at the end of January to 16,367 Rupiah at the end of March.
Export reduction due to production stoppage is another major factor of trade volume decrease. With the outbreak of COVID-19 in Wuhan, ASEAN initially had concerns over supply chain disruptions. Temporary shutdown of factories in Hubei Province started off a chain reaction in many production lines located in ASEAN as manufacturers scrambled to secure supply of parts. Given that 18.8% of the value-added of Asia Pacific’s final exports come from China and 10.4% from the US, ASEAN’s commodity trade will be severely damaged by the supply chain disruptions.
Moreover, ASEAN, having a well-developed tourism industry (as of 2018, the industry accounts for 12.6% of ASEAN’s total GDP and 13.7% of total employment), faces an unprecedented crisis with virtually no movement of people. Cambodia, the Philippines, and Thailand, which are heavily dependent on the industry, are the most exposed to the slump. Thailand is expected to lose 5 million potential tourists this year and 8 billion USD in tourism revenues. As of February 2020, the number of tourists to Thailand has already declined by 77%. Cambodia is also expected to see a 60% drop in the number of tourists and an 850 million USD in revenue from February.
■ ASEAN-Korea Cooperation to Minimize Economic Fallout
In the above-mentioned report, the IMF projected Korea’s economic growth rate to be -1.2% in 2020. Under such circumstances, a temporary downturn in socio-economic exchanges between ASEAN and Korea appears inevitable despite the growing partnership witnessed over the past years. In fact, ASEAN-Korea relations have made significant strides especially since the announcement of Korea’s New Southern Policy in 2017 which aimed to reach 200 billion USD in trade volume and 15 million people-to-people exchanges by the end of this year (as of 2019, ASEAN and Korea reached a total trade volume of $154 billion and people-to-people exchange of 12.7 million). The most immediate effect was seen in the number of travelers. As governments imposed travel bans and flights were subsequently reduced, the number of ASEAN visitors to Korea in February this year dropped 45% compared to the same month of previous year. Likewise the number of Korean visitors to Vietnam and Thailand dropped 16% and 72.6% respectively. As some countries step up preventive measures by banning landing of all international flights and arrival of passenger planes, there seems to be a de facto “travel freeze” in the region.International financial institutions, including the IMF, predict that the economy will recover gradually from the second half of 2020, but also voice that it will unlikely return to pre-COVID-19 conditions in the near future. This is a grim prospect considering that the global and regional economic situation was already suffering from various factors, including the US-China trade tensions, in late 2019 before the virus broke out.
Consequently, Korea and the 10 ASEAN Member States are making various efforts to minimize the fallout caused by COVID-19 and continue, as much as possible, to build a “people-centered community of peace and prosperity” as agreed during the ASEAN-ROK Commemorative Summit last year. Indeed, during the ASEAN+3 (Korea, China, Japan) Special Summit held earlier this week via videoconference, the leaders pledged solidarity to jointly overcome COVID-19. They agreed to maintain essential flow of economic and people-to-people exchanges, trade, investment, and essential goods such as food. Korea, highlighting the importance of the ASEAN+3 region as the growth engine of the global economy, expressed hope for maximum operation of the global supply chain in the region and stressed that the signing the RCEP, which was agreed last year, will provide a major boost to such efforts. Discussions on ways to keep the supply chains in the region stable and allow travel of essential persons, such as businessmen also took place bilaterally between Korea and several ASEAN countries and ASEAN Secretariat.
For the time being, a temporary, if not severe, economic slump caused by the COVID-19 pandemic seems unavoidable. Southeast Asian countries, heavily reliant on trade, foreign investment, and tourism will be affected. Hence, it is crucial to minimize the damage and build up resilience for a quick and robust recovery following the successful containment and elimination of COVID-19.
To this end, the ASEAN Policy Brief, published by the ASEAN Secretariat in April, suggests seven policy proposals: ▲mobilizing all available macro, financial, and structural policy tools, ▲preserving the economy’s productive capacity, ▲ keeping the supply chains going, ▲leveraging on technologies and digital trade, ▲strengthening the social safety nets, ▲scaling-up regional pandemic responses, and ▲redoubling the resolve to advance regional integration. As Korea’s second-largest trading partner and third largest investment destination, a swift recovery in ASEAN means a swift recovery in Korea and vice-versa. Therefore the two regions, ASEAN and Korea, should pull all efforts together to overcome this challenge.
Economic Impact of COVID-19 Outbreak of ASEAN (ASEAN Policy Brief, ASEAN)
Asian Development Outlook 2020 (ADB)
World Economic Outlook April 2020 (IMF)
코로나바이러스감염증(COVID-19)의 국제적 확산이 경제에 미치는 영향 (KIEP)
코로나19 글로벌 확산이 세계 경제에 미치는 영향 (한국은행)
‘코로나19 대응’ 아세안 10개국, 화상 정상회의 개최 (MBN)
RCEP 수석대표 특별 영상회의 (뉴시스)
코로나19 극복, RCEP 믿고 간다 (머니투데이)
유명희 통상교섭본부장, 아세안 등에 ‘기업인 입국 예외적 허용’ 제안 (헤럴드경제)
Tourism in Thailand and Cambodia take a virus hit (The Asean Post)