The impact of the COVID pandemic has started to subside in Southeast Asia. Regional governments continue to ease restrictions and further open their borders in 2022, giving rise to the recovery of key tourism industries and cross-border businesses. Despite the recent uncertainties caused by the Russia-Ukraine conflict, the region’s overall economy is still set for robust growth.
This insight is part of Southeast Asia’s COVID update series by ARC Consulting. Read the previous insight here.
One quarter into 2022, Southeast Asia experienced another surge in daily COVID-19 cases. Vietnam’s daily cases escalated more than any part of the region, with more than 80% of its total recorded cases happening within this period. The country’s government stressed that extra efforts are needed to reduce the number of new cases, severe cases, and fatalities. At the end of February 2022, Thailand raised its COVID-19 alert level to level 4, the highest alert level which indicates very high health risk, as the number of severe cases and deaths continued to rise. However, the government stated that it would not impose new lockdowns. Its neighbor Malaysia has also not been able to lower their cases to less than 10,000 registered infections per day. Some of the key reasons behind the high infection rate in Southeast Asia are the spread of contagious Omicron variant as well as the less precautions amongst the population after the reopening of the societies.
Philippines, on the other hand, significantly improved infection control, successfully keeping the daily cases to less than 1000 cases per day since the start of March 2022. Philippines recorded a 24% decline in daily infections in the last week of March 2022, compared to a week earlier, while the total number of cases of Indonesia in March 2022 is 2.7 times lower than its February figure.
Despite the high daily cases, many countries are well on track with the vaccination timeline, such as Vietnam, Malaysia, Thailand, and have managed to stabilize the situation in some of the big cities and provinces.
More than 70% of the population in Vietnam, Malaysia, and Thailand have been fully vaccinated. Initially, all governments targeted to achieve herd immunity by fully vaccinating around 70-90% of the population. High vaccination coverage allows these countries to reach a ‘new normal’ state, where businesses can return to their pre-COVID level of operation and the people can resume normal movement, both domestically and internationally.
Vietnam, home of 98 million people, is currently among the world’s most highly vaccinated countries. As Vietnam recently finished vaccinations of people aged 12 and older, the country now aims to wrap up booster shots for adults within the first quarter of 2022, and start rolling out vaccination for children aged 5-11 starting April 2022. With new Omicron-fueled cases on the rise, Thailand’s government has recently stepped up a campaign to vaccinate the elderly and other vulnerable groups. Malaysia, the first country in Southeast Asia to reach its herd immunity target, is ramping up the booster shot rollout. As of March 23rd, over 15 million Malaysians, equivalent to more than 40% of the population, have received a booster shots for COVID-19. Overall, it is evident that these countries’ efforts to secure COVID-19 vaccine doses through robust multilateral relationships has already paid off.
In contrast, Indonesia and the Philippines are lagging behind their targets. As of March 2022, the share of fully vaccinated people in the two nations have not even reached 60% of their population, and there was little vaccination progress during the first quarter of 2022. Amidst the exponential increase in the region, Indonesia shortened the recommended interval between the second and third dose for individuals aged 60 and older from six months to three. The Philippines also announced its plan to accelerate the administration of booster shots and the vaccination of senior citizens, including improving the accessibility of vaccination sites, simplifying the process, and increasing engagement with localities.
Current Travel Regulations and Social Restrictions
As Southeast Asia moves past the worst of the omicron wave, the region will begin a transitioning toward an endemic phase starting in the second quarter of the year. Vietnam, Malaysia and the Philippines announced waived quarantines for vaccinated international travelers with negative tests upon arrival, while Indonesia and Thailand eased testing requirements to boost tourism.
Vietnam resumed flight routes with 20 international destinations in the Asia Pacific, Europe, and the United States. However, the flight frequency is still limited compared to pre-covid levels. Yet, it is expected to quickly increase. Effective from March 15th 2022, Vietnam’s government resumed its visa exemption policy for 13 countries for up to 15 days, which had been in place prior to the pandemic. The policy applies to citizens of Belarus, Denmark, Finland, France, Germany, Italy, Japan, Norway, Russia, South Korea, Spain, Sweden, and the UK.
Following its fellow SEA neighbors, Indonesia started easing travel restriction since daily infections have dropped by 90% compared to the mid-February peak. After initially trying the program in Bali, Batam, and Bintan islands for two weeks, the government is now applying its quarantine-free travel policies for fully vaccinated individuals to the rest of the country, which would soon end the two-year border closure. The five-day quarantine will still be required for unvaccinated or partially vaccinated travelers.
On April 1st 2022, Malaysia began its transition toward the endemic phase, an exit strategy that would allow Malaysians to return to near-normal life after nearly two years of battling the COVID-19 pandemic. All restrictions on business operating hours have been removed and prayer activities are now allowed without physical distancing.
Following an initial lift of a nearly two-year ban on foreign travelers from a selected few countries, fully vaccinated travelers from everywhere are allowed to enter the Philippines and are no longer subject to facility-based quarantine upon arrival from April 1st. Travelers must present proof of vaccination and negative RT-PCR results from a test taken within 48 hours from their country of origin.
As the tourism-reliant Southeast Asian nation seeks to boost economic recovery, foreign visitors are now only required to undergo an RT-PCR test on arrival and a self-administered antigen test on day five, instead prior pre-departure RT-PCR COVID Test, starting on April 1st. At the same time, the government announced the extension of a nationwide state of emergency which will remain until the end of May to keep the spread under control.
Economic Landscape: Tourism, Trade, Mergers and Acquisitions (M&A)
Asian Development Bank (ADB) forecasted Southeast Asia’s GDP growth to be 5.1% for the year 2022, with the worst-case scenario for GDP growth to be -0.8 percentage points from the baseline forecast, factoring in the impact of the Omicron wave. In comparison, the GDP growth in 2021 landed at 3%. The road to recovery, however, has been complicated by the recent Russia-Ukraine conflict. Given Southeast Asia’s dependence on exports, the economic expansion would likely suffer from supply chain uncertainties and soaring energy prices. In March 2022, S&P Global changed its growth forecast for emerging Southeast Asia to a still relatively robust 5 percent, lowered from the initial forecast of 5.6 percent.
4.7 million Southeast Asians fell into extreme poverty in 2021, according to a new ADB report. As many as 9.3 million jobs disappeared in comparison with a baseline no-COVID scenario. Economic output in 2022 is forecasted to remain more than 10% below the COVID-free scenario. Unskilled workers, retail, and non-regulated workers, as well as small businesses without a digital presence, are among the most affected.
However, a recovery was noted in Southeast Asia towards the end of 2021. The region witnessed a rise of 161% in visits to retail and recreational areas in February 2022, compared to the levels throughout 2020. Economies with high technology adoption (Singapore, Malaysia, Thailand), merchandise resilience (Malaysia, Singapore, Thailand, Vietnam), and rich natural resources (Brunei, Laos PDR, Indonesia) are likely set for a stronger return.
The continuing trend of this year for Southeast Asian countries would be to reopen their borders for international quarantine-free travel to recover the region’s key tourism industries, which nearly halved their GDP contribution from 2019 to 2020. Border reopening also gives ways for stronger cross-border business activities. Multiple sectors could expect the return of international investors and business operators wanting to expand their portfolios in the region.
“Revenge travel” from overseas tourists is highly anticipated. A surge of 268% in flight booking from South Korea to Southeast Asia between March 11th-22nd, 2022 has already been recorded. The region’s largest sporting event SEA Games, which will be hosted by Vietnam in 2022, is also expected to boost interregional travel.
M&A activities in the region remained positive up until February 2022, mainly driven by Singapore. Southeast Asian startups raised at least 1.96 billion USD in private equity and venture capital transactions in the month. Deal count dropped 23% compared to January, yet big-ticket transactions increase deal value by 15% month-on-month. Singapore leads Southeast Asia’s funding scene by both volume and value. Indonesia came second with 34 startups raising 198 million USD. Startups in the software and SaaS sector received most of the funding. Followed are fintech, e-commerce, data analytics, and AI. Powered by interregional megadeals, Southeast Asia’s M&A activities remain bullish as the world weathers recent changes and increasing uncertainties. Dealogic recorded a reduction of 29% in the number of global mergers in the first quarter of 2022 compared to the same period of the previous year. Asia-Pacific suffered a 33% drop in transaction value, the heaviest drag among the recorded regions (North America fell 28%, Europe fell 25%).
While the number of COVID cases has continued to rise, the pandemic’s impact on the economy has been subdued in 2022. The GDP growth in most SEA counties will likely surpass the previous year’s level. Border reopening in the region helps boost the recovery of the tourism industries and the return of overseas businesses, which will significantly facilitate Foreign Direct Investment (FDI) growth and M&A in the investment-fueled region. At the same time, governments must watch out for the progress of the Russia-Ukraine conflict and prepare immediate action plans to deal with its potential consequences, such as supply chain disruption and soaring commodity prices. All in all, the overall economic growth will only be guaranteed with recovery strategies across multi-sectors.
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