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Omicron threatens ASEAN economic recovery, says ADB

Azlan Othman

Southeast Asia’s economic recovery could be slashed by as much as 0.8 percentage points because of the Omicron variant, the Asian Development Bank (ADB) said in a report on Wednesday.

ADB said the region’s forecasted growth of 5.1 per cent this year could be impacted if the Omicron variant of the COVID-19 virus disrupts supply chains and thus affect economic activity for six months.

Brunei Darussalam’s economic growth forecast this year could downgrade 0.4 percentage points due to the impact of the Omicron variant, while other ASEAN member states face a range of downgrades on their growth forecasts – from 1.9 points in Vietnam, 1.1 points in Thailand and 0.2 points in Singapore, should COVID-19 infections spike.

The region’s economic output is likely to be down by 10.3 per cent this year, against a baseline without the Covid-19 pandemic, said ADB.

The COVID-19 pandemic pushed 4.7 million people in Southeast Asia into extreme poverty in 2021, as 9.3 million jobs disappeared, compared with a baseline no-COVID scenario, according to the report presented at the Southeast Asia Development Symposium (SEADS).

The region’s economic output this year is expected to remain more than 10 per cent below the baseline no-COVID scenario. Among the most affected are unskilled workers and those working in retail and the informal economy, as well as small businesses without a digital presence.

“The pandemic has led to widespread unemployment, worsening inequality, and rising poverty levels, especially among women, younger workers, and the elderly in Southeast Asia,” said ADB President Masatsugu Asakawa.

“ADB will continue to work with policymakers as they seek to rebuild, improve national health systems, and streamline domestic regulations to strengthen business competitiveness.

“We encourage Southeast Asian governments to invest in smart, green infrastructure and adopt technological innovations to reinvigorate economic growth.”

Two years after the pandemic began, the report said growth prospects are brighter for economies with widespread technology adoption, resilient merchandise exports, or rich natural resources.

It noted an economic recovery across the region, with most countries seeing visits to retail and recreational areas rising by 161 per cent in the two-year period ending February 16.

Still, the region faces global headwinds, including emerging COVID-19 variants, the tightening of global interest rates, supply chain disruptions, and higher commodity prices and inflation.

With 59 per cent of the region’s population fully vaccinated as of February 21, 2022, the report calls on Southeast Asian governments to allocate more resources to help health systems deliver care, improve disease surveillance, and respond to future pandemics.

Health investments can boost economic growth by increasing labour participation and productivity. For example, Southeast Asia’s economic growth could rise 1.5 percentage points if health spending in the region reaches about 5.0 per cent of gross domestic product (GDP), compared with 3.0 per cent in 2021, the report said.

The report recommended 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.”