The number of coronavirus infections in Asia has risen to new record highs, since the two major peaks in September and November of last year.
While most Asian economies are burdened by the spread of coronavirus infections, some countries have managed to curd the spread quicker than the rest. But, despite such protocols, governments struggle to speed up vaccine rollouts and keep out of economic slowdowns.
As the coronavirus virus resurges in Asia, many wonder how the economic recovery would pan out in the region over the next few years.
East Asia’s handling of coronavirus spread
Japan announced a state of emergency in Tokyo, Kyoto, Osaka, and Hyogo following the fourth wave of coronavirus cases. Japan is facing a high number of hospitalizations and a low vaccination rate. The announcement comes as its big holiday in late April called Golden Week approaches and just three months before the Tokyo Olympics. Sporting and government officials in Tokyo are expected to adjust their plans for the Olympics.
New restrictions are imposed on restaurants and other establishments. Economists expect that the new lockdown measures will lead to negative growth in the current quarter.
However, International Monetary Fund (IMF) upgraded Japan’s projected growth to 3.3% in 2021 and 2.5% in 2022, led by its strong domestic policy support and favorable external conditions.
Japan’s neighbor South Korea is also seeing spiking cases lately and aims at accelerating the Covid-19 vaccine rollout. In general, Korea has managed the pandemic quite well with about 119.000 cases in total, compared to 568.000 cases in Japan (as of April 25, 2021). South Korea’s success in handling the pandemic spread has propelled their economic rebound. Strength in manufacturing and exports boosted South Korea’s growth forecast to 3.6% this year and 2.8% next year.
As the country in Asia with the first coronavirus cases, China has the virus spread now largely under control. Its economic recovery is back on track, outpacing markets like India, Brazil, and Russia. In the first three months of 2021, the Chinese economy posted a record growth rate of 18.3%. The National Bureau of Statistics expects a 34% increase in retail sales, a 26% rise in infrastructure investment, and a 14% growth in industrial production on a yearly basis.
For 2021 in total, China’s economy is now forecast at 8.4% due to higher global growth and US fiscal stimulus. However, the pace of its inoculation program has slowed. Some parts of China are experiencing a tight Covid vaccine supply.
While also Taiwan is one of the most successful in handling the pandemic, concerns linger over slower than expected vaccine rollout. The country reported its latest domestic Covid-19 infection on April 24, two and a half months after its last locally transmitted case.
Taiwan’s soaring overseas demand for emerging technologies, its control of Covid-19, and robust investment policies have helped the economy expand much better than its Asian counterparts. The country ranked the third-best investment destination in 2020 globally and first in Asia, by US-based Business Environment Risk Intelligence SA (BERI).
Severe wave slowing down Indian economy
The second-most populous country in the world, India, reported the world’s highest number of cases in a single day with 332,730. World Health Organization (WHO) Director-General Tedros Adhanom Ghebreyesus said that spreading variants, loosened public health protocols, fatigue of populations, and inadequate vaccine coverage are behind the alarming rise of cases in the country.
The second wave of infections has led to lockdowns in some places, such as New Delhi and Uttar Pradesh, but Prime Minister Narendra Modi discourages businesses from shutting down. While the current surge and restrictions could weaken sectors like tourism, aviation, travel, malls, salons, and spas, the informal sector is the hardest hit. Eighty percent of India’s workforce is in the informal sector.
Top banks and brokerage houses such as Moodys, IRCA Rating, S&P Global have downgraded their forecasts for India’s gross domestic product (GDP) for the fiscal year 2022. In addition, economists expect India’s debt burden to be higher than the current IMF forecast of around 80%.
India’s growth projection went up from 11.5% to 12.5% because of its growth-friendly fiscal policy. However, that may change due to the rising number of infections that the country is experiencing.
Southeast Asia faces coronavirus heat
Indonesia, Malaysia, Myanmar, and the Philippines are facing a recent surge in coronavirus cases. Due to slow vaccine acquisition and rollout, these countries are forced to maintain quarantine measures that are dampening economic recovery. The International Monetary Fund has downgraded its collective growth forecast for Indonesia, Malaysia, the Philippines, Thailand, and Vietnam for 2021 from 5.2% to 4.9%.
Vaccinations in Indonesia, Malaysia, and the Philippines are tremendously slower than in other nations across the world, which is expected to affect the tourism sector as well as restrict the reopening of businesses.
However, in Indonesia the Covid-19 pandemic has been easing for the past two months. While on 1 February 2021, a total of 10,994 new Covid-19 infections were registered, this number has almost halved by April 2021. Global brokerage house Fitch Ratings projected 2021 GDP growth of 5.3% for Indonesia, supported by government stimulus and net export.
Meanwhile, Malaysia passed a new emergency law to enable the government to utilize funds from oil and gas contributions to procure vaccines. The trust fund collects contributions from state energy firm Petronas and other petroleum companies in the country. It was initially created to fund infrastructure and other development projects and provide federal loans to states.
In Myanmar economic activity is now at a standstill. Amid the Covid and the political crisis, prices of rice, cooking oil, and fuel have surged since January. The country’s banking system is barely functioning, while up to 90% of national government activity has ceased.
Fiscal support needed
The Philippines recorded a new single-day record high of 8,773 coronavirus cases on April 22. Only 0.46 per 100 people of the Philippines’ 108 million population has received a vaccine. Its capital city of Manila and surrounding provinces remain under community quarantine.
As per economists, there can be lasting economic damage from the pandemic in the Philippines amid its lackluster fiscal support and failure to suppress infections, keeping required restrictions in place for a longer period. The Philippine economy contracted a record 9.6% in 2020 because of lengthy and restrictive coronavirus curbs. However, its’ central bank has announced that it will continue supporting the economy, which remains fundamentally sound despite the ongoing pandemic.
As Thailand struggles with a rapidly spreading third wave of Covid-19 infections, its central bank plans to revise the economic growth outlook, keeping financial conditions accommodative to support the economy. As per the central bank, its economy could take six quarters to return to pre-pandemic levels.
Vietnam’s economic growth hit 2.9% in 2020, led by the government’s drastic actions to control the pandemic from the early stage. With a sustained positive GDP growth rate, average FDI inflows, and effective pandemic containment measures, the Vietnamese economy has shown signs of recovery from the pandemic.
The Australian economy is also showing positive signs. The country has largely curtailed the outbreak, counting only about 30,000 local infections and 910 deaths since the start of the pandemic. This has allowed authorities to ease restrictions and put the economy on a faster recovery trajectory. The Australian economy is expected to expand on average by 4.4% this year due to its policy stimulus and improving consumer confidence in economic activity.
Post-pandemic opportunities for Asian economies
Overall, the IMF expects growth for Emerging and Developing Asia of 8.6% in 2021 and 6% next year. However, to prevent longer-term economic damage, Asia needs to expedite economic reforms to boost productivity growth and investment, the IMF states.
Moving forward in a post-pandemic world, Asia could take a lead for a better, greener future. Asia-Pacific has some of the largest carbon dioxide emitters and polluters. “The temporary re-allocation from energy-intensive sectors, such as airlines and transportation, provides an opportunity for job creation in more productive and cleaner sectors. A well-designed carbon tax package and complementary product and labor market policies could support capital re-allocation and labor reskilling”, Chang Yong Rhee, Director of the IMF’s Asia and Pacific Department, wrote.
“Asia must remain agile and innovative to exit the crisis in a durable, greener, and more equitable way.”