November 13, 2020

ASEAN Economics
The Post-Pandemic Normal

Digitalisation and Shift to “Work-from-Home” Analysts

There will be no return to the pre-pandemic normal. We highlight eight Chua Hak Bin
structural shifts, some of which were already in train but which the pandemic (65) 6231 5830
accelerated. First, the pandemic has accelerated digitalisation and the [email protected]
adoption of technology. ASEAN added 40 million new Internet users in 2020
Lee Ju Ye
alone (+11% from 2019), compared to 100 million between 2015 and 2019. This
(65) 6231 5844
has sped up the death of physical retail and growth of e-commerce, and
ECONOMICS

[email protected]
boosted the use of digital payments. Monthly active mobile banking app users
jumped, particularly in Vietnam (+73% in 9M20), Philippines (+53%) and Linda Liu
Indonesia (+44%). Second, the proportion of “work from home” workers post- (65) 6231 5847
pandemic will likely be higher. People movements to workplaces in most of [email protected]
ASEAN remain below pre-pandemic levels, except for Vietnam. Demand for
dedicated offices could shift to homes and co-working spaces.
Prolonged Slump in Air Travel; Self-Sufficiency Drive
Third, stricter border controls will persist even after the pandemic is over,
changing the future of air travel. Business travel would likely fall as virus tests
Regional

increase travel costs and time, and Zoom calls substitute face-to-face
meetings. Tourism will take longer to recover as any vaccine will not
completely eradicate the virus and may take a year before being widely
available across ASEAN. Fourth, the pandemic crisis will drive more countries
to be more self-sufficient, including for food, medical supplies and key
technologies. China is prioritizing investment in core technologies to achieve
“self-sufficiency” in segments currently dominated by the US. The Philippines
allocated $615 million to enhance food security and raise domestic rice
production to 93% from 87% of consumption.
Supply Chain Shifts to ASEAN; Broader Social Safety Nets
Fifth, the pandemic has not severed the structural shift for MNCs to diversify
their manufacturing supply chains and reduce their dependence on China. The
pandemic has made the case for diversification even more compelling. Japan
has earmarked US$223mn to support its firms to relocate production out of
China to ASEAN, of which Vietnam (15 out of 30 project approvals) received the
most interest. Sixth, many governments will have to review and broaden their
social safety nets in the aftermath, as the recession has exposed wide cracks.
The pandemic had a disproportionately large negative impact on low-wage
workers. Singapore will likely expand the coverage of its Progressive Wage
Model.
Expanded Size of Government & Central Banks
Seventh, the pandemic has pushed governments to play an expanded role,
whether in terms of fiscal support or stakes in private companies (eg.
aviation). Government presence, including in healthcare and infrastructure,
and public debt will likely be permanently larger post-pandemic, which might
imply higher taxes. Eighth, the pandemic recession has removed the stigma for
central banks to monetize and finance a greater proportion of fiscal deficits.
The Fed, ECB and BoJ have collectively expanded their balance sheet by $7
trillion or +48% since the end of 2019. In ASEAN, central bank asset purchases
have been especially large for the Philippines (7.3% of GDP) and Indonesia
(3.8%), but smaller for Thailand (1%) and Malaysia (0.6%). The post-pandemic
normal will likely see lower global growth, as stricter border controls, self-
sufficiency drives and reconfiguration of supply chains will sacrifice some
efficiency and past gains from globalization.

THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH

SEE PAGE 16 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
 Economics Research

The Post-Pandemic Normal

There will be no return to the pre-pandemic normal. Even after a vaccine
becomes available and governments begin unwinding lockdowns and social
distancing rules, we are likely to see permanent shifts in the ways we work, shop
and play - with greater use of digital solutions. We highlight eight structural
shifts, some of which were already in train but which the pandemic accelerated.

First, the pandemic has accelerated digitalisation and the adoption of

technology. ASEAN added 40 million new Internet users in 2020 alone, compared
to 100 million between 2015 and 2019, according to the e-Conomy SEA 2020
report by Google, Temasek and Bain & Company. This brings total internet users
in ASEAN to 400 million, or 70% of the region’s population. Digital consumption
accelerated with around 36% of users trying new digital services for the first time
due to the Covid-19 (see Fig 1). Sectors including education, groceries and
lending saw the most influx from new digital consumers (see Fig 2).

Fig 1: Around One Third (36%) of All Digital Service Fig 2: Education, Groceries & Lending Services Benefited the
Consumers are New to the Service Due to Covid-19 Most from New Digital Consumers

% of new digital consumers out of total service consumers % of new digital consumers out of total service
consumers (ASEAN aggregate)
Education 55%
Online Services

Loans 44%
Video 38%
Food Delivery 37%

41%
Music 34%

37% 37% 36% 36%

Groceries 47%
e-Commerce

30% 30%
Beauty 32%
Apparel 30%
Electronics 34%
Vietnam Indonesia Philippines Malaysia ASEAN Singapore Thailand
Source: Kantar, e-Conomy SEA 2020 0 SEA 2020
Source: Kantar, e-Conomy 0 0 0 0 1 1

Fig 3: Singapore – Online Sales Share of Total Retail Sales Fig 4: Thailand – Internet Sales Volume Jumped by More than
Jumped to 25% in May, Remains Significantly Above 2019 +66% in May & June During Lockdown
SGD mn Singapore
500 Online Retail Sales % of total retail sales (RHS) 30
May-20:
450 24.8%
25
400
20
350

300 15

250
Dec-19: 10
200 6.7%
5
150

100 0

Source: CEIC Source: CEIC

This has sped up the death of physical retail and growth of e-commerce. For
example, Singapore’s share of online sales jumped to 25% of total retail sales
during the circuit breaker and remains at above 10% after the easing, nearly
double the pre-pandemic share of 5.8% in 2019 (see Fig 3). Thailand’s internet
sales volume jumped as much as +66% from pre-pandemic levels during the
lockdown months in May and June and as of August remained 45% above January
levels (see Fig 4).

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 Economics Research

The pandemic accelerated the demise of brick-and-mortar retailers across the

region. In Singapore, department stores are the worst performing category with
sales remaining around 40% below pre-pandemic levels despite the exit from the
circuit breaker, due to the absence of tourists and more cautious discretionary
spending by residents (see Fig 5). Robinsons is the latest casualty of the
pandemic, joining the likes of Metro (in 2019) and Isetan (in March 2020) in
shutting their outlets. In Malaysia, Robinsons is closing two of its stores. Apparel
group Esprit closed all its stores in Asia except mainland China in June, of which
Singapore and Malaysia stores were also affected. In Thailand, Isetan closed its
Bangkok store at Central World in August while the Tokyu department store will
shut its doors in January 2021.

Fig 5: Singapore – Department Store Sales Remain Around 40% Fig 6: Mobile Banking App Users Jumped the Most in Vietnam,
Below Pre-Pandemic Levels Philippines & Indonesia
Retail Sales Index: Department Stores
Index 2017=100
2019 2020
140

120

100

80

60

40

20

0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Source: CEIC Note: Refers to period of Jan to Sep 2020 vs. previous period.
Source: App Annie

The online boom has boosted the use of digital payments and shift away from
cash. Even Japan, a heavily cash-based economy, saw a dramatic shift to digital
payments during the pandemic because of the fear of handling cash. The average
number of cash transactions by consumers in ASEAN fell from 48% pre-pandemic
to 37% post-pandemic while the frequency of e-wallet transactions rose from 18%
to 25%, based on Kantar, a research consultancy firm. Monthly active user growth
for mobile banking apps in 9M20 surged strongly across ASEAN (see Fig 6),
especially in Vietnam (+73%), Philippines (+53%) and Indonesia (+44%) where e-
payment adoption was relatively lower.

Governments have allocated higher budgets to encourage the shift towards

digitalization. In Singapore, under the Fortitude Budget in August, the
government allocated more than S$500mn (US$366mn) for digitalization,
including a Digital Resilience Bonus (payout of up to $5k for adopting e-payment,
starting with the F&B and retail sectors). Take-up of e-payments by businesses
rose sharply with 50k more businesses adopting PayNow Corporate since the
circuit breaker started in April. Malaysia’s Budget 2021 contained several
measures to encourage automation and digitalization, largest being a RM7.9bn
allocation for the National Digital Network Initiative for 2021-22 to build and
upgrade broadband services; RM230mn to finance SMEs’ upgrade of automation
systems and equipment; and an additional RM150mn for SME Digitalisation
Scheme and Automation Grant.

Several central banks have started experimenting with a digital currency,

including China and Singapore. In China, US$1.5mn of digital yuan issued by the
PBOC was handed out as a lottery in Shenzhen as a pilot programme, allowing
winners to spend the currency at over 3,000 merchants 1 . In Singapore, MAS’s

1
CNBC, “China hands out $1.5 million of its digital currency in one of the country’s biggest
public tests”, 12 Oct 2020.
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 Economics Research

Central Digital Currency Project “Ubin” has completed its final phase. Bank of
Japan announced in October that it will begin experimenting in 2021 on how to
operate its own digital currency.

Digitalisation will increase employment in tech-related sectors. In Singapore,

IT services was among the few sectors (besides electronics and insurance) that
recorded job gains in 2Q (see Fig 7). Similarly in Malaysia, information &
communication added 5.4k jobs in the first 9 months of 2020 while most sectors
recorded job losses (see Fig 8).

Fig 7: Singapore – IT Among Few Sectors that Showed Fig 8: Malaysia – Information & Communication Added Most
Employment Gains in 2Q Number of Jobs in 2020
%QoQ Change Singapore Employment Growth by Segments in 2Q20
2
0
-2
-4
-6
-8
-10
-12
-14
-16
Construction

Food Mfg
IT

Accom
Paper Mfg
Electronics

Financial Svcs

Other Mfg
Edu & Public Admin

Telecom

Wholesale Trade

Other CSP
Health

Chemical & Pharma

Land Trpt

Water Trpt

Trpt Equipt

Retail Trade

F&B

AER
Other Trpt

Real Estate Services

Professional Svcs

Machinery & Equipt

Admin & Support

Insurance

Air Trpt

Source: CEIC Source: CEIC

Venture capital funding in ASEAN will likely remain robust amid the
digitalization push. Total capital raised in tech was remarkably resilient despite
the pandemic, with ASEAN tech firms raising US$5.6bn in the first half of 2020,
more than double the $2.2bn in 2H19 (see Fig 9). Indonesia’s e-commerce players
are benefiting from the acceleration of digitalization, with Google and Temasek
recently agreeing to invest about US$350mn in Tokopedia for the online mall’s
post Covid-19 expansion. Bukalapak is also reported to be securing a $100mn
investment from Microsoft and existing backers GIC and Emtek Group2.

Fig 9: Tech Investment in ASEAN Stayed Resilient at US$5.6bn in 1H20, More

than Double the Amount in 2H19

USD mn
Capital Invested Number of Deals (RHS)
10 400
9 8.7
350
8
300
7 6.5

6 5.6 250

5 4.4 200
4 3.6
150
3 2.2
2.1 100
2 1.6 1.4
1.0 1.2
0.9 50
1 0.3 0.5
0.2
0 0
1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 2H18 1H19 2H19 1H20
Source: Cento Research

2
Bloomberg, “Microsoft to Join $100 Million Investment in Indonesia’s Bukalapak”, 3 Nov
2020.
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Second, the proportion of “work from home” (WFH) workers post-pandemic

will likely be higher. The pandemic accelerated remote working and Zoom calls.
This may even be productivity-enhancing as workers waste less time and energy
commuting. Some prefer the flexible working arrangements and balanced
lifestyle.

Even with the easing of lockdown measures, trips to workplaces in ASEAN have
yet to normalize to pre-pandemic levels (see Fig 10). A survey by the Straits
Times of nearly 1,800 people found that 8 out of 10 workers say they prefer to
WFH or have flexible working arrangements3. Based on an analysis by Deloitte, a
consultancy firm, up to 47.8mn people in ASEAN-6 could shift to working
remotely over a multi-year horizon, with Singapore and Malaysia likely to lead
the trend (see Table 1).

Fig 10: Movements to Workplaces in Most of ASEAN Remain Fig 11: Movements to Workplaces Normalizing in Taiwan,
Below Pre-Pandemic Levels, Except for Vietnam Korea & Hong Kong, Remains Down in Japan and US

Note: Last datapoint refers to 8 Nov. Note: Last datapoint refers to 8 Nov.
Source: Google Mobility Index Source: Google Mobility Index

As work-from-home becomes more prevalent, this will change the structure

of office spaces and demand in some parts of the labour market. Firms save
costs from smaller office spaces, especially in the more expensive cities. In Hong
Kong, multinationals surrendered more office space in 2Q and pushed up the
city’s office vacancy rate (10.7% in end June) to the highest in 15 years,
according to Cushman & Wakefield4. In Singapore, the shift to WFH resulted in
office vacancy rate picking up to 12.1% in 2Q20 from 10.5% in 4Q19, while office
rentals fell to 3-year lows (see Fig 12).

Demand for workspace could shift to homes and co-working from dedicated
offices. For instance, Citigroup in Singapore is not renewing its 10-year lease in
Asia Square Tower 1 in the heart of the financial district as it trims its office
space5. Standard Chartered Bank will allow employees from 9 markets – including
Singapore, Malaysia and Hong Kong – to apply for a formal flexi-working
arrangement from early next year. Tencent has opted for co-working space for
its first Singapore office for greater flexibility.

3
Straits Times, “8 in 10 in Singapore want to work from home or have more flexibility”, 12
Oct 2020.
4
Bloomberg, “Foreign firms in Hong Kong surrendering more office space”, 8 Jul 2020.
5
Bloomberg, “Amazon to take three floors of Citigroup office space in Singapore’s Asia
Square Tower 1, say sources”, 30 Sep 2020.
November 13, 2020 5
 Economics Research

Table 1: Potential Workforce Transition to Remote Working Fig 12: Singapore – Office Vacancy Rate Climbed to 12% in
Arrangements Across ASEAN-6 2Q/3Q, while Rentals Fell to 3-Year Lows
Proportion of Absolute number Office Space: Vacancy Rate
Country
current workforce (million) % Property Rental Index: Office (RHS) Index
14 195
Singapore 45% 1.2
190
13
185
Malaysia 26% 4.1 12
180
11 175
Philippines 22% 9.0
10 170
Indonesia 16% 21.2 165
9
160
Thailand 15% 5.5 8
155
7 150
Vietnam 13% 6.9 '14 '15 '16 '17 '18 '19 '20

Source: Deloitte Source: CEIC

Third, stricter border controls will persist even after the pandemic is over,
changing the future of air travel. Virus tests at airports will increase travel
costs and time. Many of us will travel less frequently post-pandemic for business,
as cheap Zoom video calls substitute the need for in-person meetings. A
Globetrender survey on 2,020 business travelers (conducted in Jul-Aug) showed
that 8% of respondents have already resumed travel and 39% expected to resume
in 2020. But more people were uncertain – 37% only expect to resume in 2021,
11% were not sure while 5% indicated that they will not travel for business going
forward (see Fig 14).

Tourism will take longer to recover as any vaccine will not completely
eradicate the virus and may take a year before being widely available across
ASEAN. We think it will take around 3 years for travel to normalize to pre-
pandemic levels, similar to the duration it took for US flights to normalize after
the 9/11 terrorist attack in 2001 (see Fig 13). Visitor arrivals in ASEAN in 2020 are
less than a third of last year’s levels, with the impact largest in Thailand (22.7%
share of 9M 2019) and Singapore (19.5%) (see Table 2).

Fig 13: US – Airline Passengers Took 3 Years to Normalize Fig 14: Survey Results – When Will Business Travellers Start
Following 9/11 Attack in 2001 Travelling Again?
Person mn
U.S. Airline Passengers %YoY (RHS)
75 40
Jul-04: 68.9m
70 30
Aug-01: 65.4m
65
20
60
10
55
0
50
-10
45
-20
40

35 -30
Sep-01: 35.8m
30 -40
'00 '01 '02 '03 '04 '05
Source: US Bureau of Transportation Statistics Note: Respondents breakdown by geography: UK (43%), Asia (18%), North America
(12%), Western Europe (11%), Australasia (8%).
Source: Globetrender

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 Economics Research

Table 2: Visitor Arrivals in ASEAN in 2020 Less Than 30% of 2019 Levels
2019 YTD2020
% of same period
Person th Person th Available data till
in 2019
Thailand 39,797 6,692 Sep 22.7
*Malaysia 26,101
Vietnam 18,009 3,803 Oct 26.2
Indonesia 16,164 3,562 Sep 29.3
Singapore 14,558 2,154 Sep 19.5
*Philippines 8,188
Cambodia 6,611 1,248 Sep 25.9
Myanmar 4,364 852 Jul 34.5
*Data for Malaysia only available up to Mar 2020, while Philippines only available up to Dec 2019.
Source: CEIC

Fourth, the pandemic will drive more countries to be more self-sufficient,

including for food, medical supplies and key technologies. Vaccine nationalism
and the US-China trade war has intensified this shift. China is prioritising
investment and major breakthroughs in core technologies to achieve “self
sufficiency” in a range of tech segments currently dominated by the US. Chip
production in China jumped by +37% in 9M20, accelerating from the +15% in 2019
(see Fig 15 & Disruption Watch #9: War Games & Online Games, 7 Sep 2020).

China’s “dual-circulation” strategy – pursuing both economic self-reliance and

greater economic leverage over foreign countries - was among the highlights in
the Communist Party’s 14th Five-Year (2021 to 2025) plan. While the plan did not
list out specific industries, it referred to the need to develop critical
technologies locally. Earlier in August, China also announced tax breaks and loan
support for semiconductor and software firms. Semiconductor Manufacturing
International Corporation (SMIC) and Shanghai-based Hua Hong Semiconductor
Ltd – are expected to benefit the most from the new scheme6.

Table 3: Singapore – Top Source of Imports of Food Items Fig 15: China – Production of Integrated Circuits Climbing
Rapidly
Eggs Vegetables Fruits
% of % of % of
Top Source Top Source Top Source
total total total
1 Malaysia 72% Malaysia 41% Malaysia 39%
2 Singapore 26% China 27% China 11%
3 Ukraine 1% India 7% South Africa 8%
4 Thailand 1% Australia 5% Philippines 7%
Fish Chicken Duck
% of % of % of
Top Source Top Source Top Source
total total total
1 Indonesia 21% Brazil 46% Malaysia 94%
2 Vietnam 19% Malaysia 37% Ireland 4%
3 Malaysia 15% United States 13% Thailand 1%
4 Norway 9% Argentina 2% France 1%
Note: All data from 2019 except for duck (2018). Source: CEIC
Source: Singapore Food Agency, Channel News Asia

More countries are diversifying their food and medical supply chains, which
experienced disruptions during lockdowns. Vietnam, Cambodia and Myanmar
restricted rice exports in April/May while Thailand restricted eggs exports for
around a month since late March. Malaysia’s Ministry of Finance highlighted that
the pandemic exacerbated food insecurity issues7. In 2019, rice production was
sufficient to meet only 70% of domestic demand. In the Philippines, the

6
South China Morning Post, “China unveils major tax incentive policy to encourage
innovation in domestic semiconductor industry”, 5 Aug 2020.
7
Ministry of Finance, Economic Report 2020/2021 (Nov 2020), Chapter 1 “Economic
Management and Prospects”.
November 13, 2020 7
Economics Research

government allocated a P31bn (US$615mn) funding under a new “Plant, Plant,

Plant” programme – of which P8.5bn went to the Rice Resiliency Project - to
enhance food security and increase domestic rice production from 87% of rice
consumption to 93%8. For Singapore, which is heavily dependent on neighbouring
countries for food imports (see Table 3), the disruptions led to an expansion of
its list of approved countries for egg supplies to 13 as of May, almost double the
tally in 20169. Singapore is ramping up domestic production of food to 30% by
2030 (from <10% currently). The government has set aside S$30mn worth of
grants for growers to raise production of eggs, leafy vegetables and fish within
the next two years.

Fifth, the pandemic has not severed the structural shift for MNCs to diversify
their manufacturing supply chains and reduce their dependence on China. On
the contrary, the pandemic has made the case for diversification even more
compelling, as many MNCs faced supply disruptions in the early part of the Covid-
19 pandemic when China locked down and shut their borders. For example,
Japan earmarked US$223mn out of its supplementary budget for 2020 to help its
manufacturers shift production to ASEAN, and 30 projects were approved in the
first round of applications in end June (see Table 4). The program specifically
targets projects that expand production networks into ASEAN, rather than pulling
out of a given country 10 . Vietnam (15) received the largest number of
applications, followed by Thailand (6) and Malaysia (4).

Table 4: Number of Japanese Firms Shifting Production to ASEAN

Number
Country Sector
Applied
Power module parts, Pharmaceutical manufacturing equipment,
Medical gown/face shield/masks, Rare earth magnets, Air conditioner
Vietnam 15
parts, Semiconductor manufacturing equipment parts, *Hard disk drive
parts, *Blood circuit for dialysis
Disinfectants, Rare metal, Auto parts, *Blood circuit for dialysis,
Thailand 6
Vaccine production line, Medical gown
Nitrile rubber gloves, Rare metal, Medical product base cloth, Lead
Malaysia 4
wire terminals
Philippines 3 Medical gown, Medical surgical mask, Precision sheet metal
Laos 2 Medical gown, *Hard disk drive parts
Myanmar 1 Commercial gloves
Indonesia 1 Medical gown
*Two firms applied to shift to 2 ASEAN countries.
Source: JETRO

While foreign direct investment in ASEAN was derailed this year by the
pandemic and lockdowns, we expect to see more manufacturing FDI flows in
2021. Indonesia was the only country to see a rebound in foreign investment
realization in the manufacturing sector in 2020, mainly on the back of the
chemical & pharma and machinery & equipment industries (see Fig 16). While FDI
inflows have slumped in Thailand, there are signs of recovery for the year ahead
with FDI approvals for the electronics sector in the first nine months of 2020
more than doubling from last year’s levels (see Fig 17). The Finance Ministry,
under new Minister Arkhom Termpittayapaisith is preparing tax adjustments to
further incentivize foreign investment for each business sector, on top of the tax
privileges that the Board of Investment (BoI) already offers11.

8
Manila Bulletin, “Implementation of P8.5b rice resiliency project starts”, 3 May 2020.
9
Bloomberg Quint, “Singapore Diversifies Food Supplies with Saudi Shrimps and Polish
Eggs”, 16 Jun 2020.
10
Nikkei, “Japan expands ‘China exit’ subsidies for moves to Southeast Asia”, 15 Oct 2020.
11
Bangkok Post, “Finance Ministry prepares tax adjustments to lure FDI”, 17 Oct 2020.
November 13, 2020 8
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Fig 16: Indonesia – Foreign Investment in Manufacturing Fig 17: Thailand – FDI Application Approved for Electronics
Sector in 9M20 Surpassed Full Year 2019 Levels More Than Doubled in the First 9 Months of 2020
USD bn Indonesia Foreign Investment Realization
18 Manufacturing Sector %YoY (RHS) 60

16 50

14 40

12 30

10 20

8 15.9 16.7 10
13.0 13.2 9.6
6 11.8 11.8 0
10.3 9.7
4 -10

2 -20

0 -30
2012 2013 2014 2015 2016 2017 2018 2019 9M20
Source: CEIC Source: CEIC, BoI

Malaysia and Vietnam, which saw strong foreign investment interest in 2019,
will also benefit from this pandemic-induced shift. Malaysia’s foreign
investment approved in manufacturing jumped by +54% in 3Q, bringing overall
FDI approved in 9M20 (+0.8% vs. -29.1 % in 1H20) on par with the same period last
year (see Fig 18). For Vietnam, total implemented FDI for both manufacturing &
non-manufacturing sectors remained relatively resilient with signs of gradual
recovery in 3Q (-0.2% vs. -4.9% in 1H20) (see Fig 19).

Fig 18: Malaysia – Foreign Investment Approved in Fig 19: Vietnam – Actual FDI Inflows Remained Relatively
Manufacturing Turned Positive in 9M20 Resilient Despite Pandemic This Year

Source: CEIC Source: CEIC

Sixth, many governments will have to review and broaden their social safety
nets in the aftermath. The recession has exposed wide cracks as the pandemic
had a disproportionately large negative impact on lower-wage workers. Sectors
that saw the largest job losses, including retail, F&B, hospitality, recreation and
tourism, hire more lower-wage workers. Many countries were not prepared for
the large spike in unemployment rates, which also fan social unrest.
Unemployment rate in the Philippines jumped to a historical high of 17.7% in
April before subsiding to 10% in July. In Indonesia, the unemployment rate
climbed to a decade high of 7.1% in August from 5% in February (see Fig 20).
Countries with unemployment insurance schemes including Thailand saw a spike
in claims (see Fig 21).

Strengthening of social protection systems in ASEAN has not corresponded to

its marked GDP growth in recent decades. Based on a report by the Asian
Development Bank, social protection expenditure in ASEAN ranges between 0.1%
of GDP in Myanmar to 6.3% in Vietnam, but remains significantly below East Asia
countries such as Japan (21%), South Korea (8.4%) and China (7.7%) (see Table 5).
Social insurance (pensions, unemployment benefits, health insurance) is the
November 13, 2020 9
 Economics Research

dominant form of social protection in ASEAN, and typically excludes the self-
employed or workers in the informal economy – which accounts for a large share
of the labour force in the region (see ASEAN Economics – Labour Market:
Retrenchments & Recovery, 9 Jul 2020).

Singapore will expand the coverage of its Progressive Wage Model (PWM) to more
sectors, according to DPM Heng Swee Keat12. Currently the PWM covers Singapore
citizens and permanent residents in the cleaning, security and landscape sectors.
Singapore is also exploring unemployment insurance schemes.

Fig 20: Unemployment Rate Rose Sharply Across ASEAN, Fig 21: Thailand – Ratio of Jobless Claims to Total
Especially in Philippines & Indonesia Contributors Remains Elevated in 3Q
Unemployment Rate
% Indonesia Malaysia Singapore %
12 Thailand Vietnam Philippines (RHS) 20

Global Financial 18
10
Crisis 16

8 14
ID: 7.1%
12
6 PH: 10%
10
MY: 4.7%
4 8
SG: 3.6%
VN: 2.5% 6
2 Asian Financial TH: 1.9%
Crisis 4

0 2
'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22

Source: CEIC Note: Employees who contribute to the social security system account for 31% of
total employment.
Source: BoT, Social Security Office

Table 5: Social Protection Expenditure in ASEAN Lagging East Asia

Social Protection Expenditure
(% of aggregate GDP), 2015
Active Labour
All Categories Social Insurance Social Assistance
Market Programs
Japan 21.1 19.4 1.7 0.1
South Korea 8.4 6.5 1.8 0.1
China 7.7 6.9 0.6 0.1
Vietnam 6.3 5.5 0.6 0.1
Asia Average
5.3 4.2 1.1 0.1
(25 countries)
Singapore 5.3 4.1 0.9 0.3
Malaysia 4.2 4.1 0.1 -
Thailand 4.1 3.1 0.9 -
Philippines 2.9 2.0 0.9 -
Indonesia 2.1 1.4 0.6 0.1
Cambodia 0.8 0.4 0.4 -
Laos 0.8 0.7 0.1
Myanmar 0.1 0.1 - -
Note: Social insurance includes pensions, health insurance and unemployment & disability insurance.
Social assistance includes cash or in-kind transfers, child welfare, assistance to the elderly, healthy
assistance and disability benefits. Active labour market programs include skilled development and
training and public works programs.
Source: Asian Development Bank, “The Social Protection Indicator for Asia: Assessing Progress” report
(July 2019)

Seventh, the pandemic has allowed governments to play an expanded role,

whether in terms of fiscal support or greater stakes in private companies (e.g.
aviation). The speed and size of fiscal responses across ASEAN have been massive
and aggressive, pushing public debt higher especially in the Philippines (53.6% of
GDP in 3Q20 from 42.1% in 2019), Thailand (49.4% in 3Q20 from 41.2% in 2019)

12
Business Times, “Singapore to expand Progressive Wage Model to more sectors”, 5 Oct
2020.
November 13, 2020 10
 Economics Research

and Malaysia (59% in 2Q20 from 52.5% in 2019) (see Table 6 & Fig 22). Size of
governments will likely be larger post-pandemic, including in healthcare and
infrastructure, which might mean higher taxes to finance the expanded role.

Singapore will raise its GST rate from 7% to 9% - we expect the hike some time in
2023 – partly to balance its operating budget and replenish its reserves.
Singapore drew down a record S$52bn from past reserves as part of its $100bn
Covid-19 support package. Thailand is introducing a new tax for e-commerce and
e-businesses, and the Finance Minister has instructed the Revenue Department to
seek ways to expand the tax base to those outside the tax system13.

Table 6: Fiscal Stimulus Balloon Due to Unprecedented Support Measures

Singapore Thailand Vietnam Malaysia Indonesia Philippines
Amount Amount Amount Amount Amount Amount
% of GDP % of GDP % of GDP % of GDP % of GDP % of GDP
(SGD bn) (THB tn) (VND tn) (MYR bn) (IDR tn) (PHP bn)
Total Fiscal Stimulus 92.9 19.2% 2.4 14.0% 252.6 4.2% 295 19.5% 728.4 4.6% 819.7 4.2%
Direct budget stimulus
(cash handouts, tax waivers, >49.7 >10.3% >1.0 >5.8% 215.9 3.6% 45.6 3.0% >270.4 >1.7% 304.9 1.6%
etc)
For businesses >42.1 >8.7% >0.4 >2.3% 180 3.0% 30.1 2.0% 139.1 0.9% 55.6 0.3%
For households 7.7 1.6% 0.6 3.5% 35.9 0.6% 15.4 1.0% >113.2 >0.7% 249.3 1.3%
Direct non-budget stimulus Not Not
- - - 9.5 0.2% 160.9 10.6% 7.6 0.05% -
(EPF withdrawals, etc) disclosed disclosed
Government Loan Support 22.7 4.7% 0.72 4.2% 16.2 0.3% 64.4 4.3% 177.1 1.1% 197.3 1.0%
Other ^14.1 2.9% >0.4 >2.3% 11.0 0.2% 14.7 1.0% 197.2 1.2% 145.3 0.7%
*Estimated Fiscal Impulse
13.3% 5.8% 1.7% 2.6% 4.6% 4.6%
(% of GDP)
^S$13bn in the latest Fortitude Budget set aside in the Contingencies Funds.
*Note: Fiscal impulse for SG, MY, ID and VN are estimated based on government projections of change in fiscal deficit (as % of GDP) pre-Covid vs. post-Covid. As for
Philippines & Thailand, estimated fiscal impulse refers to MKE estimate.
Source: Various finance ministries, Maybank KE estimates

Fig 22: Public Debt Has Climbed the Most in Philippines, Thailand & Malaysia

% of GDP Public Debt

70 2019 Latest
59.0 58.6
60 56.1
52.5 53.6
49.4
50
42.1 41.2
40 36.0
30.7
30

20

10

0
Malaysia *Vietnam Philippines Thailand Indonesia
*Refers to estimate for 2020 announced in October by the Ministry of Finance.
Note: Latest datapoint for Indonesia, Thailand and Philippines as of 3Q20; Malaysia as of 2Q20.
Source: CEIC, Vietnam Ministry of Finance

There is also a greater push for governments to revive the economy with
large public infrastructure projects, capitalising on record low global interest
rates. For instance, Vietnam’s National Assembly approved the use of VND23.5tn
(US$1bn) of the state budget into 3 sections of its North-South Expressway

13
The Nation, “Finance Minister orders tax overhaul to boost post-Covid economy”, 11 Nov
2020.
November 13, 2020 11
 Economics Research

project, shifting away from the public-private partnership (PPP) model 14 . The
government also announced a state disbursement target of VND700tn (US$30bn)
for 2020, more than double the amount in 2019. Several major infrastructure
projects, including the upgrading of the existing Tan Son Nhat and Noi Bai
International Airports, were given expedited instructions to commence in end
June to ramp up public investment.

Malaysia’s latest Budget 2021 earmarked a record RM69bn for development

spending – a +38% jump from 2020 - with RM15bn to be spent on transport (see
Malaysia Budget 2021 – Nursing the Economy Back to Health, 7 Nov 2020).
Indonesia allocated Rp150tn (US$10bn) in Budget 2021 for the Public Works and
Housing Ministry, mainly to work on the US$33bn new capital city project – which
was put on hold this year due to the pandemic15. The Public Works and Housing
Ministry has also committed to expedite seven infrastructure projects worth
Rp76.4tn (US$5.4bn) through PPP schemes to begin by early next year, which
include 6 toll road and bridge projects and the Djuanda drinking water system in
West Java16.

Eighth, the pandemic recession has removed the stigma and allowed central
banks to monetise and finance a greater proportion of fiscal deficits. Both the
IMF and World Bank are recommending countries to spend their way out of the
pandemic and cast fiscal austerity aside. Saving lives and livelihoods is more
important. Major central banks including the Fed, ECB, BoJ and BoE have
expanded quantitative easing and collectively expanded their balance sheets by
$7 trillion or +48% since the end of 2019 (see Fig 23). During the Global Financial
Crisis, the 3 major central banks expanded their balance sheet by around $4.6
trillion (between 2008 and 2012).

Fig 23: Major Global Central Banks Scaling Up QE & Monetising Fig 24: Fiscal Deficits in ASEAN Expected to Widen to
Fiscal Deficits Unprecedented Levels with Aggressive Stimulus Support

USD tn
Central Bank Assets

25 US Federal Reserve European Central Bank Bank of Japan

Thousands

20

15

10

0
'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Source: Bloomberg Source: CEIC, Maybank KE forecasts

ASEAN governments, including in Indonesia, Malaysia, Philippines and

Thailand, have relaxed fiscal rules and are monetizing a greater proportion of
their fiscal deficits and debt (see ASEAN Economics – Fiscal Bazookas &
Straitjackets, 30 Apr 2020). The Philippines, in particular, has been the most
active in central bank asset purchases, which amounted to 7.3% of GDP, based on
IMF’s estimates, followed by Indonesia at 3.8% of GDP (see Table 7). Purchases in
Thailand (1% of GDP) and Malaysia (0.6% of GDP) are relatively small. The
repercussions on currencies and inflation from the central bank asset purchases
have been limited so far.

14
Vietnam Times, “Vietnam parliament approves the use of state budget for North-South
expressway sections”, 21 Jun 2020.
15
Jakarta Globe, “Public Works Ministry Eyes to Continue New Capital Constructions in
2021”, 10 Nov 2020.
16
Jakarta Post, “Ministry to expedite PPP projects worth Rp76 trillion”, 12 Nov 2020.
November 13, 2020 12
 Economics Research

Table 7: ASEAN Asset Purchase Programs in Response to Covid-19

Program
Total Purchases Duration
Country Primary Objectives Asset Type Target or Limit Size Market
(% of GDP) (observed
or explicit)
Stabilize domestic bond market, Initially not specified, with
Indonesia provide liquidity to the financial Government bonds direct “burden sharing” of Both 3.8** Mar - present
sector, finance budget deficit Rp398tn later announced
Max 10% of issue size in
Provide liquidity to the financial
primary market; max 10% of
Malaysia sector and orderly financial market Government bonds Both 0.6 Mar - Jun
outstanding amount in
functioning
secondary market
Provide liquidity to the financial Secondary market purchases
Government bonds,
sector, stabilize bond market, finance not specified, repurchase
Philippines budget deficit (repurchase including repurchase Both 7.3^ Mar - present
amount limited to about
agreement
agreement) P850bn
Government, central
Thailand Stabilize domestic bond market Not specified Secondary 1 Mar - Apr
bank bonds

*Indonesia includes IMF estimates of secondary market purchases, primary market purchases prior to July, and the full Rp398tn July burden sharing agreement, though
only about 60% of the agreed purchases had been completed through mid-September.
^Philippines includes IMF estimates of secondary market purchases (which started in March) and the three-month repurchase agreement of P540bn (3.0% of GDP) with
the central government added in parentheses, and the BSP closed out a previous P300bn repurchase agreement in September.
Source: IMF

Fig 25: Central Bank Purchases in Emerging Markets as of August 2020

Note: Indonesia primary market purchases include only the share of the burden sharing agreement
completed through Aug, not the entirety of the Rp398tn plan. Primary market purchases for the
Philippines refer to the P300bn repurchase agreement in Apr 2020, which was repaid in Sep.
Source: IMF

Central banks have helped ease investors’ concerns by being transparent

about their objectives, duration and size of bond buying. Bank Indonesia
clearly stated that the size of its burden sharing program will be at Rp400tn
(US$27bn or 2.5% of 2020 GDP) of bonds. The plan could be extended to 2021 if
the target is not met this year due to the government underspending on its
health and social budget 17 . BSP specified that the term of agreement for its
P300bn government bond repurchase agreement with the Treasury Bureau was at
most 6 months.

The post-pandemic world will likely face lower global growth, as border
controls, self-sufficiency and reconfiguration of supply chains will sacrifice
some efficiency and past gains from globalisation. The pandemic recession has

17
Reuters, “Indonesia c.bank asks lawmakers to delay institutional reforms to 2021”, 28
Sep 2020.
November 13, 2020 13
Economics Research

accelerated digitalisation, but has also exposed fault lines in supply chains, social
safety nets and healthcare infrastructure. Planning for the next virus X or climate
emergency will require governments to make bold shifts in investment and
institutions in the post-pandemic world. Prepare for a new post-pandemic normal.

November 13, 2020 14

Economics Research

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Economics Research

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Economics Research

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Economics Research

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Maybank Investment Bank Berhad Maybank Kim Eng Securities Pte Ltd Maybank Kim Eng Securities Maybank Kim Eng Securities USA
(A Participating Organisation of Maybank Kim Eng Research Pte Ltd (London) Ltd Inc
Bursa Malaysia Securities Berhad) 50 North Canal Road PNB House 400 Park Avenue, 11th Floor
33rd Floor, Menara Maybank, Singapore 059304 77 Queen Victoria Street New York, New York 10022,
100 Jalan Tun Perak, London EC4V 4AY, UK U.S.A.
50050 Kuala Lumpur Tel: (65) 6336 9090
Tel: (603) 2059 1888; Tel: (44) 20 7332 0221 Tel: (212) 688 8886
Fax: (603) 2078 4194 Fax: (44) 20 7332 0302 Fax: (212) 688 3500

Stockbroking Business:  Hong Kong  Indonesia  India

Level 8, Tower C, Dataran Maybank,
Kim Eng Securities (HK) Ltd PT Maybank Kim Eng Securities Kim Eng Securities India Pvt Ltd
No.1, Jalan Maarof
28/F, Lee Garden Three, Sentral Senayan III, 22nd Floor 1101, 11th floor, A Wing, Kanakia
59000 Kuala Lumpur
1 Sunning Road, Causeway Bay, Jl. Asia Afrika No. 8 Wall Street, Chakala, Andheri -
Tel: (603) 2297 8888
Hong Kong Gelora Bung Karno, Senayan Kurla Road, Andheri East,
Fax: (603) 2282 5136
Jakarta 10270, Indonesia Mumbai City - 400 093, India
Tel: (852) 2268 0800
Fax: (852) 2877 0104 Tel: (62) 21 2557 1188 Tel: (91) 22 6623 2600
Fax: (62) 21 2557 1189 Fax: (91) 22 6623 2604

 Philippines  Thailand  Vietnam  Saudi Arabia

Maybank ATR Kim Eng Securities Inc. Maybank Kim Eng Securities Maybank Kim Eng Securities Limited In association with
17/F, Tower One & Exchange Plaza (Thailand) Public Company Limited 4A-15+16 Floor Vincom Center Dong Anfaal Capital
Ayala Triangle, Ayala Avenue 999/9 The Offices at Central World, Khoi, 72 Le Thanh Ton St. District 1 Ground Floor, KANOO Building
Makati City, Philippines 1200 20th - 21st Floor, Ho Chi Minh City, Vietnam No.1 - Al-Faisaliyah,Madina Road,
Rama 1 Road Pathumwan, P.O.Box 126575 Jeddah 21352
Tel: (63) 2 8849 8888 Bangkok 10330, Thailand Tel : (84) 844 555 888 Kingdom of Saudi Arabia
Fax: (63) 2 8848 5738 Fax : (84) 8 38 271 030
Tel: (66) 2 658 6817 (sales) Tel: (966) 920023423
Tel: (66) 2 658 6801 (research)

 South Asia Sales Trading  North Asia Sales Trading

Kevin Foy Andrew Lee
Regional Head Sales Trading [email protected]
[email protected] Tel: (852) 2268 0283
Tel: (65) 6636-3620 US Toll Free: 1 877 837 7635
US Toll Free: 1-866-406-7447

Indonesia London
Iwan Atmadjaja Greg Smith
[email protected] [email protected]
(62) 21 8066 8555 Tel: (44) 207-332-0221

New York India

James Lynch Sanjay Makhija
[email protected] [email protected]
Tel: (212) 688 8886 Tel: (91)-22-6623-2629

Philippines
Keith Roy
[email protected]
Tel: (63) 2 848-5288

www.maybank-ke.com | www.maybank-keresearch.com

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