Asia-Pacific economies could hit pre-Covid-19 levels: Moody's

The Asia-Pacific (Apac) region continues to lead global growth, with all economies tipped to rebound this year, according to a Moody's Analytics report.

In addition, economies in the region, except the Philippines, Thailand and Malaysia, are expected to recover past their pre-pandemic levels by the end of this year.

Apac's gross domestic product (GDP) had already edged above its pre-pandemic peak in the final quarter of last year. Pack leaders China, New Zealand, Taiwan and Vietnam are now expanding, with real GDPs having surpassed pre-pandemic (Q4 2019) levels. India's GDP is also marginally above its pre-pandemic peak. Of the remaining economies, most are within two to three percentage points of achieving a new peak in GDP.

All Apac economies are anticipated to hit record growth this year. As at last Thursday, Moody's Analytics forecasts India to record the strongest growth of 12 per cent, followed by China (8.3 per cent) and Vietnam (7.5 per cent).

New Zealand, the Philippines, Taiwan, Singapore, Indonesia and Hong Kong are forecast to grow by 5 per cent to 6 per cent. Malaysia, Australia, South Korea, Japan and Thailand are expected to grow by about 3 per cent to 4 per cent.

In the second half of the year, the region is expected to be supported by increased immunity to Covid-19 and less social distancing. North America and Europe are also expected to emerge from Covid-19 restrictions, and, as a consequence, drive global spending. A recovery in international trade, supportive fiscal policies and measures to manage the coronavirus outbreak are other factors in Apac's favour.

Globally, aggregate merchandise trade and industrial production made a full recovery in December, the report noted. Throughout North Asia and much of South-east Asia, exports are now above pre-Covid-19 levels.

Rising prices for crude oil, palm oil and other commodities are also contributing to the rising value of exports for commodities producers like Indonesia and Malaysia.

On the fiscal end, Apac economies such as Malaysia, Singapore, Japan and Australia have continued to provide modest stimulus this year, via targeted deficit spending, following aggressive policies last year. These countries provided more sizeable fiscal responses last year, measured as a percentage of GDP, compared with large economies like Canada, France, Germany, Italy and Brazil.

The pace of vaccinations is also expected to boost the region's economy in the second half of the year. The report identified only the Philippines and Thailand to be lagging in their procurement of vaccines, though its forecast assumes they will acquire the vaccines needed, with more sources.

On balance, only Thailand, Malaysia and the Philippines are expected to take till next year for real GDP to grow past pre-pandemic levels. Thailand is forecast to reach that milestone in the first quarter of next year, followed by Malaysia in the second quarter and the Philippines in the third.

Thailand's high exposure to travel and tourism is expected to continue hobbling its recovery for some time. Malaysia also depends heavily on tourism; and its economy ground nearly to a halt in the fourth quarter of last year because of movement control orders.

Hardest hit of all could be the Philippines. Its real GDP saw the steepest plunge last year out of all the Apac economies, shrinking by over 9 per cent. Quarantine orders restricted mobility for much of last year. Its fiscal response was limited and it has not yet developed an effective system for delivering vaccinations across the archipelago, added the report. Herd immunity may not be achieved until 2023.

"At this point in economic recovery, the risks to the outlook are increasingly balanced on the upside and downside of our baseline forecast," concluded Mr Steven Cochrane, chief Apac economist at Moody's Analytics, on the region's prospects as a whole.

He added: "The downside risks related to Covid-19 are easing as vaccines are distributed. And the passage of the latest stimulus programme in the US... creates additional upside potential for the outlook for the global economy."

THE BUSINESS TIMES