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Daniel Moss

Southeast Asia’s Economies Look More Submerged Than Emerging

Rapid recovery in the U.S. means the region lags behind in growth as well as vaccinations. 

High rates of growth won’t return without achieving population immunity.

High rates of growth won’t return without achieving population immunity.

Photographer: Ed Wray/Getty Images

Times are tough when you’re wrestling with Covid-19, recession — and a rapidly recovering America. The U.S. offers superior rates of growth, a prospect once considered outlandish, and a bullish prognosis on vaccinations. Emerging economies in Southeast Asia are naked. They should also be afraid.  

The U.S. economy is roaring back from 2020’s debacle. Unlike Donald Trump’s foundering response to the health and economic crises, Joe Biden is being likened to the second coming of Franklin D. Roosevelt and the Federal Reserve is credited with staving off a global financial collapse. Once, emerging markets were more enticing, with a galloping pace of growth to offset shortcomings in skills, health and corporate governance. Now, they’ve lost their head of steam.

This shift has major implications for how countries like Indonesia, Malaysia, Thailand and Vietnam manage the next few years. Sub-par growth with little inflation would normally be a recipe for a fresh reduction in interest rates and a dramatic increase in government spending. Yet monetary policy appears stubbornly on hold after significant easing last year. The U.S. comeback creates a problem. With the Fed likely to deliberate over coming months on how and when to withdraw stimulus, emerging markets risk being left exposed to capital flight should they move in the opposite direction. It’s one thing to keep alongside the Fed; you’re likely to pay little price. It’s quite another to head the other way and effectively try fighting it. 

The U.S. is expected to hit more than 7% growth this year, the best result since 1984. Yet Indonesia's economy, the largest in Southeast Asia, contracted more than anticipated in the first quarter, with gross domestic product declining 0.7% from a year earlier, the fourth consecutive dip. That’s an improvement from a 2.2% slide in the previous period, but this would-be, V-shaped ascent is moving at a snail's pace. The Bank of Thailand warned that the current wave of infections jeopardizes its forecast for revival.The projection at risk is a pretty modest one, at 3% growth this year. Malaysia’s central bank has raised the alarm as well. Reinstating lockdowns in key regions means that prospects are “tilted to the downside.” Malaysian GDP shrank 3.4% in the fourth quarter from a year earlier; economists project a small contraction in January-to-March figures to be released this week.

It's hard to see these nations regaining their confident footing without a dramatically ramped-up pace of vaccinations. Deutsche Bank AG reckons that 70% of a given population being protected from infection, either through vaccination or recovery from illness, is an important threshold. Some developed economies are rapidly getting shots to people, such as the U.S. and U.K. But Japan has begun slowly. In Southeast Asia, Singapore is making decent progress while the rest of the region trails behind.

The pandemic could finally bury whatever hopes remained that emerging Southeast Asia could finally regain the go-go growth enjoyed before the financial crisis of the late 1990s. The region’s Tiger Economies have since been overshadowed by China’s rise and learned to live with growth rates beating the developed world, but never quite reaching their former peak. Covid-19 looks likely to call that bluff for what it’s become — stagnation.

Prolonged delays in vaccination are especially bad news for Thailand, which depends heavily on tourism. People have to feel assured going there, and the government must be comfortable admitting folks in sufficient numbers to make a difference. For Vietnam, tightly controlled borders and restrictions on activity are a reminder that there’s more to vitality than being a trade-war winner. Governments face calls to extend support for hard-hit industries, and there’s a big risk of proliferating zombie firms.

“Inability to achieve population immunity may come at the cost of restraining growth in these economies for many years,” wrote Michael Spencer, Deutsche Bank's chief economist for Asia, on April 28. 

Maybe America is the newest Tiger.