There is growing optimism in Southeast Asia that things will work out well despite the recession 2023 promises to deliver still looming large globally. Last year in October, the International Monetary Fund (IMF) released the Regional Economic Outlook for Asia and Pacific highlighting how the Asia Pacific (APAC) region was facing economic challenges heading into the new year. 

For example, the economic trends Southeast Asia faced, as highlighted in the report, indicated that many economies would experience a drop in growth in 2023. It forecasts Singapore to drop from 3.0 growth in 2022 to 2.3, Indonesia from 5.3 to 5.0, Malaysia from 5.4 to 4.4, the Philippines from 6.5 to 5.0, and Vietnam from 7.0 to 6.2. Other countries in the Association of Southeast Asian Nations (ASEAN), like Thailand and Brunei Darussalam, were some of the few predicted to rise, with figures of 2.8 to 3.7 and 1.2 to 3.3, respectively.

Causes of the impending recession

It is possible to list many reasons for the global economic issues, but the primary outcome on everyone’s lips was that the world’s nations would be in a recession this year. Firstly, global economies were weakened by the COVID-19 pandemic, damaging international and local trade and destroying businesses. The reduced financial activity led to joblessness, taxation problems, insufficient investments, and a lack of capital to run businesses and generate revenue.

The second impacting factor is that the need to sustain economies led governments to increase spending and provide stimulus packages to organisations and citizens. Reopening the borders after the pandemic did not lead to the high demand expected, and supply diminished as the months passed. Thus, countries are importing less than they used to, leading to a drop in foreign exchange.

Thirdly, the pandemic disrupted supply chains throughout ASEAN, and the war in Ukraine later compounded this. Tensions between the United States and China due to trade and the impending takeover of Taiwan have interfered with supply in the area too. Add to that the rise in energy and food costs due to the war, and you get enormous economic pressure piling up. Manufacturing has also slowed down in many places because of energy and supply chain problems.

Another crucial cause has been the economic situation in the United States. Since the US has the reserve currency, its interest rate increases have hurt global economies and raised the costs of goods and services.

Southeast Asia will prevail, here’s why

Asia House—a London-based think tank—believes Asia can survive the global economic crisis and spur growth in the region. In its report, Annual Outlook 2023, the firm notes that Asian countries can grow by boosting local demand for goods and services, prioritising innovation, accelerating digital transformation, delivering targeted investment, balancing monetary policies, and fostering regional coordination.

The key target for investment highlighted by Asia House is digital and green innovation. Asia has been vulnerable to energy-price volatility, affecting production costs and exacerbating the cost of living. The region can produce more efficient energy supplies, protect the environment and reduce carbon emissions with green energy alternatives.

Furthermore, governments should support companies incurring additional costs to switch to green technologies. Going green will create new, affordable, sustainable opportunities for their societies. For example, sustainable waste management companies can form, reducing unemployment, keeping the region clean, and preventing health risks occurring due to pollution or poor waste removal policies.

Innovation will enhance green finance to help Asia cope with future social, financial, and environmental challenges. Startups can develop innovations like convenient carbon pricing and payment, which combine finance and the social good of protecting the environment. Regarding digital readiness, the region needs to bridge the gap between digitalisation in urban and rural areas to spur growth and boost their economies.

Additionally, Phyllis Papadavid, Director of Research and Advisory at Asia House, said their report showed that finding the right balance in monetary policy would contribute to Asia’s growth. Central banks are currently making mistakes with their policy approaches, risking entrenching inflation or prolonging a recession. There are also other risks that interest rates may increase unexpectedly to deal with a new challenge; for example, if the bond markets are volatile.

Finally, getting Asian countries to work together will bolster economic integration, providing access to a larger market, enabling investment from locals and foreigners, and creating opportunities for experts to share ideas that enhance innovation.

Looking at the economic trends Southeast Asia is witnessing, it is clear that what the predicted recession 2023 had in store for the region will go differently than initially forecasted. Many opportunities exist to shift ASEAN toward green, digital, and sustainable solutions. Doing so can help them overcome the global economic headwinds and challenges posed by geopolitical issues worldwide.