ICAEW.com works better with JavaScript enabled.

Each quarter, ICAEW produces economic updates on China, South East Asia and the Middle East. While each region’s economy has suffered due to the crisis, the differing economic structures mean the crisis has played out in unique ways, while long term challenges present on the trade front before the crisis have not gone away.

  • China’s export recovery contingent on global recovery while trade dispute with US will not go away, even under a Biden White House
  • South East Asia’s recovery varied across the region, strong in Thailand and Vietnam, precarious in Indonesia and the Philippines
  • Oil price shock exacerbated the hit to the Middle East, while travel restrictions will stunt economic diversification plans away from oil production


Having implemented the earliest lockdowns, the hit to China’s economy was largely concentrated in the first quarter of 2020. The recovery began in March, and exports were able to gain global market share when other countries were in lockdowns. Exports did contract sharply in February (-41% y/y in US$ terms) when economic activities came to a standstill amid lockdown measures at the peak of COVID-19 outbreak in China. However, these have since recovered with goods exports in US$ terms growing 0.1% y/y in Q2, followed by 7.2% y/y increase in July. This defied expectations that the coronavirus-induced global downturn would have led to a severe drag on exports.

Strong demand for electronic products, in part bolstered by a ‘work-from-home’ practice globally, offset weak demand for other products. Moreover, many Chinese exporters have been agile and able to respond to new challenges and opportunities quickly, such as by ramping up exports of protective gear and medical equipment amid the coronavirus pandemic. These factors contributed to the resilience of Chinese exports in recent months.

However, the road ahead appears bumpy. Monthly surveys of businesses in July suggest that orders for future exports are falling. Moreover, the progress of the epidemic and speeds of reopening vary across the globe, which will pose headwinds to China’s external demand. And while China’s global trade share jumped in Q2 as other countries’ exports plunged, the disruption in manufacturing sectors in many countries is now resolving. This means that some of China’s incremental exports in recent months will tail off.

Longer term, strategic bottlenecks present before the onset of the crisis have not gone away. The coronavirus crisis makes it less likely that China will achieve its trade deal targets for US export purchases under the ‘phase one’ trade deal agreed in January that aimed at easing the developing trade war between the two nations. But fresh tariffs would slow the fragile recovery for both economies, so Oxford Economics expects hostilities to remain muted for the time being.

However, as the US presidential election approaches, new threats could become a risk and further strain US-China relations, which have already deteriorated sharply. While a Trump victory in November would raise the risk of new tariffs, a Joe Biden win would not imply major trade liberalization. Biden’s platform stresses multilateralism and a mindset of negotiation, but it still frames China as a “trade abuser”. So, while a Biden victory might make new tariffs less likely, US-China trade relations may be set for a deep freeze, no matter who wins the election.

In all, efforts by the US and several other countries to “decouple” from China are expected to have a negative impact on its export sector over the medium term. And just as the resilience has shown in recent months, it is too early to become overly negative about the prospects for China’s exports.

Oxford Economics forecast China’s economic growth to remain on an uptrend over the course of H2, with investment leading the recovery. GDP will therefore grow 2.5% in 2020, followed by 7.9% in 2021.

China: Exports to key markets

South East Asia

South East Asian economies entered a technical recession (two consecutive quarters of falling GDP) in H1 as the coronavirus delivered the largest growth shock the region has seen since the Asian financial crisis.

Economic activities are now picking up, although the strength of the rebound in economic activity in the coming quarters is far from assured, particularly in Q4, after the expected initial strong bounce in global trade and domestic activity post-lockdowns has faded. Moreover, we expect the pace of recovery over the second half of 2020 to vary across the region, reflecting the varying success in containment of the outbreak and lockdown exit strategies. The situation remains precarious in Indonesia and the Philippines, with infections accelerating after restrictions were prematurely relaxed, leading to a pause or reversal of reopening plans. These economies remain highly vulnerable given weak public health infrastructure, disappointing fiscal support and that these economies are much more consumer driven.

Meanwhile, Thailand, and until recently Vietnam, have convincingly contained the COVID-19 outbreak and data shows movement to work is back towards pre-crisis levels. In Vietnam, tighter movement restrictions are limited only to areas that have recently seen a surge in infections, such as Danang. Moreover, Vietnam’s economy is still growing. Indeed, manufacturing production is 8% higher than in Q4 2019, whilst production in the Philippines and Thailand is down more than 20%, and over 5% in Singapore.

Vietnam, as a heavily export-oriented economy along with Singapore, will continue to benefit from a stabilisation in trade indicators, as shown by a recent improvement in exports over recent months. The upgrade to China’s outlook is also positive as exports to China in value added terms account for 10.3% and 7.7% of GDP in Vietnam and Singapore. Malaysia’s exports are also set to benefit from improving Chinese import demand and the electronics cycle.

South East Asia: exports to China

Overall, we forecast average SEA GDP growth to contract by 4.2% in 2020, before improving to 6.4% in 2021. The Philippines is set to record the largest contraction in the region, with GDP falling 8.2% given its dependence on tourism and a slower easing in social distancing measures. Thailand’s reliance on tourism will also be a drag on its recovery, with growth set to contract by 6.6% this year. Meanwhile, notwithstanding the re-imposition of some restrictions, recovery prospects look brightest for Vietnam as they contained the virus very effectively. Indeed, we expect it to be the only SEA economy to record positive growth this year, with GDP rising 2.3%, picking up to 8% in 2021.

Singapore’s GDP is forecast to contract 5.7% this year from the severe decline in global trade but nascent signs of a recovery in exports and imports means growth will rebound 6.1% in 2021. In Malaysia, the speed of the recovery will likely ease back given sluggish global demand, high unemployment and weak investment. The forecast is that the economy will shrink by 6% this year, followed by growth of 6.6% in 2021. Oxford Economics remain cautious about the pace of recovery in Indonesia as a weak labour market combined with delays to budget disbursements means household income will be squeezed. Overall, GDP is expected to contract 2.7% in 2020 followed by a 6.2% expansion in 2021.

Middle East

The Middle East is suffering a severe downturn as lockdowns to mitigate the spread of COVID-19 have been exacerbated by an oil price crash. Exports in oil-producing countries are experiencing some of the worst of the damage, as they grapple with the huge collapse in oil prices during March and April. Across the Gulf Cooperation Council (GCC), total exports are forecast to decline between 6-12% in 2020. For oil importers, the outlook is slightly more encouraging due to the benefits from lower oil prices, even as crucial sectors such as trade and tourism take a hit and remittances come under pressure.

The outlook for exported services (travel and tourism) remains very challenging. Our estimates show that inbound travel to the region will not return to pre-coronavirus levels until 2023, undermining economic diversification plans such as Vision 2030.

Dependence on expat workers in vulnerable sectors means the burden of job losses will fall on the expat population. Combined with visas depending on employment and lack of a social safety net, an expat exodus is likely as travel restrictions are eased. This could result in the population declining by between 4% (in Saudi Arabia and Oman) and around 10% (in the UAE and Qatar).

The stringent lockdowns implemented in Q2 appear to have been successful in limiting the spread of the virus in most countries, but they put a significant strain on activity. GDP for the Middle East region is expected to contract by 7.6% this year, almost double the -3.9% pace projected in April, according to Oxford Economics. Growth will return positive in 2021 and 2022, both at +4%, as lockdowns are fully eased, global travel picks up and Brent oil prices move closer to $50pb.

Middle East 2020 exports