The Covid-19 outbreak has inflicted a devastating toll on the Gross domestic product (GDP) growth in Asia. Most economies recorded contraction for the past few quarters on the back of the lockdown led to economic fallout. However, economists suggest the trend of economic recession seems to be signaling recovery, with advanced Asian economies reporting better than expected GDP figures for the first quarter of 2021.
The path to recovery in 2021 is expected to be long and divergent in APAC regions, said International Monetary Fund (IMF). In its 2021 outlook, IMF said that GDP revisions have been positive for the advanced economies in Asia-Pacific. However, there is notable cross-country variation within the region.
GDP growth in Asia has benefitted from the strong global economic recovery and the increasing rollout of vaccines in the region, according to the Asian Development Bank’s (ADB) report. In its Asian Development Outlook economic report, ADB revised Asia’s economic growth forecast from 6.8% to 7.3%. It added that Asian economies contracted by 0.2% in 2020, slightly lower than its previous projected decline of 0.4%. It also projects this growth to slow down to 5.3% in 2022.
Performing Beyond Expectation
Outperforming forecasts for the first quarter, some economies were able to report GDP growth in Asia, recording recovery from a major recession. This also prompted analysts to revise growth forecasts upward for 2021 for a few economies.
China recorded an 18.3% YoY growth in January-March 2021, witnessing the highest rate of growth since 1993. Chinese exports also surged, mainly to the US and Europe, with a growth rate of 38.7% YoY for the first quarter of this year. The Chinese economy expanded by 2.3% in 2020, being the only major economy to record growth. Many economists expect GDP growth to exceed by 8% in 2021. IMF said China’s growth has been marked up to 8.4% this year, due to stronger net exports.
Hong Kong too reported better-than-expected data. It saw an increase of 7.8% in its GDP for the first quarter of 2021, ending six straight quarters of growth decline. This was a significant rebound from the record 9.1% decline recorded in the same period of last year.
South Korea’s GDP grew by a seasonally adjusted 1.6% in the first quarter of 2021, as per data by the Bank of Korea, outpacing analysts’ estimates. South Korea’s economic recovery has been attributed to a surge in capital investments and exports due to increasing global demand and the government’s continued support for struggling small businesses. The country’s finance ministry expects the economy to expand slightly faster than its previous estimate of 3.2% for the year. For Korea, IMF expects growth to pick up to 3.6% this year, and to 2.8% in 2022.
Singapore’s Ministry of Trade and Industry (MTI) reported a 1.3% YoY GDP growth for the first quarter of 2021, significantly higher than the 0.2% advanced estimates. On a quarterly basis, Singapore’s seasonally adjusted GDP growth was at 3.1%, surpassing the 2% advance growth forecast. This was the first quarterly growth registered in Singapore since the Covid-19 pandemic began in 2020. MTI attributed the growth to gains in several sectors, including manufacturing, finance and insurance, and wholesale trade. However, MTI decided to maintain its 2021 GDP growth forecast range between 4% and 6% due to “significant downside risks”. This was due to the recurrence of Covid-19 cases in Singapore as well as its major economic partners in Asia.
In India, GDP continued to accelerate in the first quarter of this year, growing 1.6% Quarter on Quarter, government data showed. This was ahead of the 1% median projections made by economists polled by Reuters. The country, however, witnessed its first yearly economic contraction in 40 years with –7.3% for the financial year 2020-21. Further, economists expect a reversal of the trend for the upcoming quarter owing to the second wave of infections in the country since early April 2021. IMF has revised India’s GDP growth to 12.5% but added that the current surge in infections presents a worrisome downside risk.
Covid-19 resurgence causes contractions
On the other side, several Asian countries were hit hard by the pandemic and continued registering a decline in GDP for the first quarter of this year. Setbacks in the vaccine rollout, the resurgence of the virus, increased income inequality, and longer than expected recovery have led to GDP contraction in some of the Asian economies, said IMF in its latest outlook. IMF expects regional growth to come in just above 7.5% this year, and just short of 5.5% next year
Japan saw its GDP fall by 1.3% in the first three month of 2021, representing an annualized 5.1% decline. This was slightly higher than the 1.2% analysts’ forecasts and marked Japan’s return to contraction after its economy grew in the last quarter of 2020. Several areas in Japan, including Tokyo and Osaka, are still under a state of emergency due to the spread of Covid-19. The country’s recovery from the pandemic has also been hampered by its slow distribution of Covid-19 vaccines. Japan’s economic minister Yasutoshi Nishimura mentioned in an announcement how service consumption in the country has been weak, but he expects the economy to recover faster if vaccination efforts progressed. IMF projects 3.3% growth in 2021 and 2.5% for the next year in Japan.
Thailand’s increasing number of Covid-19 cases has negatively impacted its consumption and tourism, causing the economy to contract by 2.6% YoY in the first quarter of this year. This was the fifth straight quarter of contraction in the GDP, but the fall was less than expected. Thailand’s National Economic and Social Development Council (NESDB) downgraded its GDP growth forecast for the full year to 1.5% – 2.5% from 2.5% – 3.5%. Meanwhile, data from Thailand’s seasonally adjusted quarterly GDP increased by 0.2% Quarter on Quarter, outperforming economists’ forecasts of a 0.8% decline.
IMF said growth in the ASEAN economies has been marked down to 4.5%, given still high infection rates in Indonesia, Malaysia, and the Philippines. Indonesia’s GDP too contracted merely by 0.74% YoY in first quarter of 2021. This fell within the government’s forecast range of a contraction between 1 and 0.1%. “GDP remains negative but far better than the previous quarters, showing that the economic recovery trend is unfolding as expected,” Statistics Indonesia (BPS) said.
On a quarterly basis, Malaysia’s recorded a GDP contraction of 0.5% in the first three month of this year. The country recorded GDP growth of 0.7% in the same period last year. As per Bank Negara estimates, GDP growth in Malaysia is likely to remain in the range of 6.0% to 7.5% in 2021.
In the Philippines, uncertainties regarding efforts to fight the pandemic to address the Covid-19 pandemic and the slow rollout of vaccines have caused its GDP to contract for the fifth consecutive quarter in the first quarter of 2021. The country’s GDP fell more than expected to 4.2% during the period. The country is still behind in vaccination roll-outs, as compared to its Southeast Asian neighbors like Singapore, Malaysia, and Indonesia.