Constrained Recovery: Global Shocks and Emerging Southeast Asia

Southeast Asia’s emerging economies are set to surpass China’s growth rates for the first time in decades, marking a shift in regional and global economic dynamics, a new Lowy Institute Data Snapshot shows.

The interactive Data Snapshot, entitled Constrained Recovery: Global Shocks and Emerging Southeast Asia, reveals the resilience and adaptability of Southeast Asian countries in rebounding from the Covid-19 pandemic and the Russia–Ukraine War.

“The region seems poised to retain its position as one of the best-performing regional economies in the world,” write Walker, Rajah and De Gorostiza.

“Emerging Southeast Asian economies are expected to be among the prime beneficiaries of the diversification of global supply chains away from China.

“For the first time in decades, growth is expected to be faster in Emerging Southeast Asia than it is in China.”

But despite the return to strong growth, Emerging Southeast Asia’s post-Covid outlook has been more negatively affected than most developing regions and the benefits of supply chain diversification have so far been limited.

“Global shocks have cost the region more than elsewhere in terms of lost growth and missed gains in living standards,” write Walker, Rajah and De Gorostiza.

“Crucially, these losses are expected to be permanent given growth is projected to be slower than before the pandemic.

“With policy space constrained, the challenge for governments is in addressing the scars of the pandemic while maintaining a credible and sustainable macroeconomic framework.

“Targeted spending to reduce poverty and reverse educational losses is an immediate priority.

“In the medium term, a focus on raising greater tax revenues will be vital to allowing much-needed additional spending on core development priorities while protecting fiscal sustainability, noting that tax levels across the region are generally low.

“Reforms to improve infrastructure, skills, and the business environment along with a focus on the clean energy transition will also help to attract greater investment.”


  • Emerging Southeast Asia managed the economic impacts of Covid-19 and Russia’s invasion of Ukraine relatively well. Nonetheless, the costs have been high in terms of foregone growth, weakened investment, sharp learning losses, slower poverty reduction, and reduced policy space given large budget deficits and still elevated inflation. 

  • A tepid global recovery and high exposure to a weakened Chinese economy present substantial headwinds. Meanwhile, gains from the expected diversification of trade and investment out of China have so far been limited, reflecting China’s continued dominance within manufacturing supply chains and tight global financial conditions.

  • The immediate policy challenge is to address the economic and social scars of the pandemic while maintaining a credible and sustainable macroeconomic framework. Generating more tax revenue is a key medium-term priority. Traditional competitiveness reforms coupled with a focus on meeting new priorities, such as the need for clean energy, would help capitalise on the opportunities from shifting international trade and investment.

The Data Snapshot Constrained Recovery: Global Shocks and Emerging Southeast Asia is available to view and download at the Lowy Institute website.

Andrew Griffits
Head of Media and Communications