Indonesia and the Philippines grew by 7.1% and 11.8% in Q2, respectively, and have exited the pandemic-induced recession. However, these strong ASEAN-5 economies were largely driven by base effects from the substantial economic contractions in Q2 last year. Meanwhile, most Southeast Asian countries, including the Philippines and Indonesia, are experiencing substantial new outbreaks driven by the spread of the highly infectious Delta variant of the COVID-19 virus. This presents substantial risks to future economic growth figures. The economic growth numbers posted by Indonesia and the Philippines were largely inline with our expectations. We expect a similar trend in Thailand and Malaysia when they report their Q2 GDP growth figures in the coming weeks. 

Our View

Looking ahead, we expect a gradual recovery across ASEAN-5 economies, driven by faster vaccine rollouts and a decline in the number of COVID-19 cases in the coming quarters. Despite a stable outlook, substantial risks present in the market have the potential to significantly disrupt economic growth. Lower-than-expected vaccination rates and a rising death toll could elongate ongoing outbreaks. This would result in a double-dip recession in the coming quarters, especially once the low base effects gradually fade. Meanwhile, a potential upside risk from buoyant exports could prop up growth in these economies.

Business Implications

Companies should align with their local teams on their expectations for economic recovery in their markets. They should also account for downside risks in their demand planning should the double-dip recession materialize, pushing down domestic demand. B2B firms should consider prioritizing exports of their products, as external demand from advanced markets is expected to remain relatively more stable.

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