Regional Economic Recovery in Uncertain Times

Summary

The arrival of 2022 marked the start of the end of the coronavirus (COVID-19) pandemic in Southeast Asia as countries in the region decided to try to live with the virus. The decision was driven by a combination of factors, including the reduced virulence of new strains of the virus, rising vaccination rates, and lockdown fatigue. By the end of the first quarter of 2022, most countries had opened their borders. Still, Southeast Asia, as well as most of Asia, lagged behind Europe and North America in unwinding domestic and border mobility restrictions put in place in response to the pandemic.

The earlier easing of restrictions in Europe and North America unleashed huge pent-up demand, and the unevenness of their recovery placed pressure on the production side of supply chains in Southeast Asia. This came on top of the ongoing trade tensions between the United States and China, which had escalated over time and resulted in disruption and some relocation of supply chains. Logistics were also under strain as bottlenecks emerged at ports and other transport nodes. While this demand spurred growth and recovery in Southeast Asia, it also increased price pressures. This was compounded by the Russian invasion of Ukraine on 24 February 2022, raising food and energy prices as well as geopolitical risks.

The COVID-19 pandemic has had major social and economic effects in the region, as well as across the world.1 The lockdowns lasted long enough to induce economic scarring. The direct effects of the pandemic have already increased unemployment, poverty and inequality. The indirect effects, such as the push towards the digital economy, will further increase unemployment and inequality unless policies that enable greater factor mobility are put in place. Such policies have become more urgent given the ageing populations at varying speeds in Southeast Asia. However, the forces against globalization, which have garnered strength and momentum from the pandemic, are likely to increase the resistance towards such policies. New forms of protectionism, disguised as attempts to increase resilience and strengthen self-reliance in an increasingly divided world, are also gaining favour.