Economies in Asia are treading uneven paths due to the region’s mixed success in managing the coronavirus pandemic. Economic outlook for each country depends on its containment measures, the speed and effectiveness of vaccine rollout, external demand, and fiscal spending.
Asia’s pandemic response in general has allowed its economies to fare better than their Western counterparts, according to Louis Kuijs, head of Asia economics at Oxford Economics as per CNBC.
However, political unrest, localized outbreaks, and the resurgence of Covid-19 cases that trigger prolonged lockdowns and movement restrictions could disrupt Asia’s economic recovery. The global recession and trade issues can also slow down economic growth.
“If Asian economies can continue to avoid major new lockdowns, the impact of weakness in Europe and the US will only soften the continued recovery in Asia, not undo it,” he said.
According to the December Update of the Asian Development Bank (ADB), Developing Asia is forecast to contract by 0.4% in 2020, but growth will rebound to 6.8% in 2021. East Asia’s growth forecast for 2020 is at 1.6%, while South Asia will contract by 6.1% last year, and Southeast Asia by 4.4%. Central Asia is projected o contract by 2.1%, and the Pacific economies by 6.1%.
A closer look at Asian economies
Australia surged out of recession in 2020. Thanks to the creation of 90,000 jobs in November that led to a 3.3% GDP growth in the third quarter. The country’s unemployment rate fell to 6.8% from 7.5% in July. The International Monetary Fund (IMF) forecast shows Australia’s real GDP will grow by 3.0% in 2021. Increasing iron-ore prices and improving national budget drive the country’s economic performance. However, the impact of trade tensions between Australia and China has yet to be felt by both economies especially in the agriculture sector.
China’s GDP in 2020 is predicted to grow between 1.9% (IMF) to 2.1% (ADB). Its rosy numbers in the third quarter were attributed to the manufacturing and services sectors. IMF expects the Chinese economy to expand by 8.2% in 2021, ADB predictions are at 7.7%. China saw its exports rise by 9.9% on-year in September due to worldwide demand for personal protective equipment, appliances, and plastics.
India’s economic recovery shows encouraging signs, but it still has a long way to go to reach pre-pandemic levels, economists say. India’s second quarter GDP contracted at a slower pace of 7.5% compared to 23.9% in the first quarter of 2020 while IMF predicts an 8.8% GDP growth in 2021. The government says India will face a V-shaped pattern of recovery. Analysts believe that the availability of a vaccine will dictate the pace of recovery in India, where 30,000-40,000 new Covid-19 cases are reported daily. For instance, India’s manufacturing recovery dropped in November due to the rising number of infections in some urban centers of the country.
The increase in household spending and lending activity as well as the positive news on coronavirus vaccine make 2021 promising for Indonesia. Its GDP may soar by 6% next year, a giant leap from the -1.5% growth prediction by IMF in 2020. In its December Update the ADB is less optimistic, forcesting the country’s GDP to contract by 2.2% in 2020 before returning to growth in 2021, at 4.5%. High unemployment rate and poverty hamper Indonesia’s economic activity. After slipping into a recession for the first time in two decades, Indonesia relies on its stimulus program for economic recovery. Part of the stimulus funds will be spent on mass vaccination in 2021.
While IMF predicts a 2.3% GDP growth in Japan in 2021, the government raised its economic outlook to 4.0% in December from 3.4% in July. Thanks to the $708 billion stimulus package aimed at helping the economy recover from the pandemic. The Japanese government expects private consumption, which accounts for more than half of the economy, to grow by 3.9% in fiscal 2021, down from a previous estimate of 4.1% increas
Malaysia is expected tp grow between 7% (ADB) to 7.8% (IMF) in 2021. The success of the country’s vaccination program is expected to accelerate this growth. Further movement restrictions and domestic political uncertainty pose risks to Malaysia’s economic recovery. What will fuel it is the government’s policy support through fiscal packages and cumulative interest rate cuts, according to analysts.
In the Philippines, multiple storms, high unemployment rate, the effects of global recession, and weak public health policy slow down economic recovery. The Philippines is one of the countries that are performing poorly in terms of virus testing and tracing capabilities. However, the government remains optimistic, predicting that the country’s GDP growth in 2021 will hit 6.5% to 7.5%, in line with IMF’s forecast of 7.4% or ADB’s of 6.5%.
Singapore started to see its economic performance improve after the partial lifting of its lockdown measures. The finance and insurance sector remains its bright spot while transportation and storage are the worst-performing services sector. With a rebound in sight, Singapore is expected to grow by 5.1% in 2021. The optimism is also underpinned by the positive growth outlook for Singapore’s key trade partners: the U.S., Euro Area, China, and Japan.
South Korea is set to continue its economic recovery momentum in 2021, with a projected growth of 3.3% (ADB). The positive outlook is underpinned by improving exports and domestic demand. However, potential outbreaks and vaccine rollout could still shape economic uncertainties. The government is focused on spending coronavirus relief funds and creating jobs and supporting businesses hit by the pandemic.
For Taiwan, IMF revised its forecast for the country’s economic growth from -4.0% in June to 0% in October 2020. Analysts expect the economy to recover in 2021 with 3.2% GDP growth. The Taiwanese government has been highly praised worldwide for its effective handling of the coronavirus pandemic. Taiwan’s export boom during the pandemic is driven by the high demand for its hi-tech products. Industries, such as transportation, biotechnology, energy, semiconductors, and digital software, can benefit from the growing demand from Taiwan’s domestic market.
Compared to its ASEAN peers, Thailand appears to have the slowest economic recovery due to domestic political unrest. Protests could weaken the tourism-dependent economy further, but exports will probably drive its GDP growth in 2021. With a 4.0% growth forecast from IMF and ADB next year, Thailand is expected to improve its competitiveness to adapt to the new normal.
Dubbed as Asia’s shining star during Covid, Vietnam has a 2.4% growth forecast for 2020 and 6.7 % for 2021. The IMF lauds Vietnam’s public health measures and expects the country’s domestic and foreign economic activity to gradually return to normal. The manufacturing sector benefits from the U.S.-China trade war, attracting multinational companies like Apple and Samsung. Vietnam’s diversified export market also helped accelerate its economic recovery.
For Asian economies to truly recover from the pandemic, the IMF recommends stronger health measures, sustainable fiscal support and monetary policy, and structural reforms that will be favorable to employment and investments.