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A Snapshot of Post-Pandemic Trade in ASEAN

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Pacific Money | Economy | Southeast Asia

A Snapshot of Post-Pandemic Trade in ASEAN

Inflation and rising commodity prices have assisted some countries’ recovery, while holding back others.

A Snapshot of Post-Pandemic Trade in ASEAN
Credit: Depositphotos

As the global economy recovers from the effects of the COVID-19 pandemic, the lifting of lockdowns and reopening of borders has released a wave of pent-up demand which is pushing up the price of commodities and durable goods around the world. In the United States, which is experiencing some of the worst inflation, the Federal Reserve is expected to raise interest rates throughout the year. While it is not always the case, countries running current account deficits have historically been more exposed to external shocks and currency volatility when the Federal Reserve tightens monetary policy.

The current account measures the net flow of goods, services, and income into and out of a country. Each category is measured separately, but if their cumulative outflow is more than what is coming in, that country will run a deficit. In ASEAN, most countries prefer to run surpluses, which means they typically seek to maximize exports of goods and services while reducing imports. As the global economy lurches back to life, it’s now possible to assess where several major countries in Southeast Asia stand in terms of these balances.

Thailand saw exports of goods surge to $269.6 billion in 2021, an increase of $26.9 billion from 2019 levels. This netted a surplus of nearly $40 billion in the balance of traded goods, yet the country still ended 2021 with an overall current account deficit of $10.6 billion mainly because the tourism sector has yet to find its legs.

In 2019, Thailand recorded $59.8 billion in travel-related service exports. By 2021 that figure had shrunk to $4.8 billion. If the industry recovers to even a third of its pre-pandemic levels this year, it will go a long way to shoring up the current account. This is something Thai government officials will be closely monitoring especially as high prices of imported commodities and a depreciating baht are going to keep the pressure up throughout 2022.

The Philippines, after accumulating a current account surplus of $11.6 billion in 2020, also slipped back into negative territory with a $6.9 billion deficit in 2021. The 2020 surplus can be explained mainly as an effect of the pandemic, which drastically reduced imports even as income remittances from Filipinos living abroad remained strong. Remittances were strong again in 2021, accounting for $30.4 billion of inflows, but a robust recovery in imports dragged the current account back into deficit.

While high commodity prices have placed deficit pressure on the current accounts of countries like Thailand and the Philippines, they have been a boon to commodity exporters like Indonesia and Malaysia. The early stages of the pandemic narrowed Malaysia’s current account surplus to 7.7 billion ringgit (approximately $1.8 billion) in the second quarter of 2020, but exports – especially of in-demand commodities like palm oil – have been red hot ever since. Malaysia closed out the fourth quarter of 2021 with a current account surplus of 15.2 billion ringgit ($3.5 billion) on the back of surging goods exports.

Indonesia, another commodity exporter, has seen perhaps the most dramatic reversal in its current account during the course of the pandemic. Indonesia’s current account went from a $30.3 billion deficit in 2019 to $3.3 billion surplus in 2021 powered mainly by global demand for things that Indonesia has in abundance, such as coal and palm oil. Exports of coal increased from $21.7 billion in 2019 to $31.5 billion in 2021, while palm oil exports jumped from $14.7 billion to $26.5 over the same time period. In March 2022 alone, Indonesia netted $4.5 billion in surplus exports.

This gives them some breathing room as the Fed starts raising rates this year, which otherwise might have put pressure on the rupiah had they continued to run large current account deficits as was the norm before the pandemic. It has also probably emboldened the government to be more aggressive in the recent use of export bans intended to stabilize the domestic price of cooking oil and electricity. Without a comfortable surplus in the current account, banning export of any kind would be a tougher sell.

There is nothing inherently good or bad about running a deficit or a surplus in the current account. It all depends on the composition of the balance, and what use the inflows and outflows are put to. But at this moment in time, given high levels of global inflation and commodity prices, countries that don’t have to import as much and have a bit of a surplus as the Fed raises rates are probably in a more favorable short-term position.