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During 2020, Asia’s success in controlling Covid-19 became the world economy champion. While Europe and the US were immersed in deep recessions, much of Asia escaped with a smaller decline or continued to grow.
But western economies a vaccine-induced bounce Those planning to return to the pre-pandemic scale this year continue to be paralyzed by coronavirus in some parts of Asia. As a result, although production in the region is above pre-pandemic levels, slower growth is expected in the coming months.
When it introduced a new regional approach last week, the Asian Development Bank said the region’s economies were different and that Covid-19 was more of a high-risk wave.
“New outbreaks continue, in part due to new variations, and many Asian economies face challenges in obtaining and administering vaccines,” said ADB chief economist Yasuyuki Sawada.
ADB forecast 5.6% growth in all developing Asian economies in 2021 8.1 percent in China and 11 percent in India. But the constant threat of coronavirus reduces the risk of this approach from getting worse.
“Six months ago or eight months ago, I would say Asia will be ahead of the game because it can control Asian Covid,” said Steve Cochrane, chief economist for Apac at Moody’s Analytics in Singapore.
But the picture has changed India is suffering from a severe wave virus, and still large cases in countries like Indonesia, the Philippines and Thailand. Thailand cannot be reopened its crucial tourism industry.
More subtly, countries like Japan control the virus only with restrictions that keep parts of the economy in hibernation. “Some countries need vaccines to control Covid,” Cochran said. “Others need it to be able to open up to international travel and tourism.”
Promises to grow more than 6 percent in the U.S. this year, as a result of President Joe Biden’s fiscal push, Asian exporters would normally lick their lips.
Growth in the U.S. is lower than the forecast would normally mean: Americans already bought a lot of goods during the pandemic, and high U.S. interest rates would lead to tighter financial conditions in Asia.
“Adding stimuli at this stage, from a goods perspective, is a real test of whether desires are being met,” said Freya Beamish, chief economist at Asia Phanton Macroeconomics. As the economy expands, U.S. consumers will likely pay for services that were denied during the shutdown (such as meals and haircuts) instead of replacing the TV.
Beamish said there will also be some consequences of the U.S. stimulus, and noted that service providers also need equipment. “We suspect that people will find new goods to buy and that Asia will benefit.” But he added: “We suspect that China will benefit proportionately less from the recovery of services than from the recovery of manufacturing.”
Whether the demand for U.S. goods is high or low is very positive. Conversely, higher U.S. interest rates and stronger dollars would threaten many emerging Asian economies by repeating the 2013 “taper tantrum”.
Increased financial integration and foreign currency borrowing mean that the pain of rising US interest rates is being felt quickly on the other side of the Pacific.
“A stronger dollar is no longer an invalid blessing for Asia,” said Frederic Neumann, head of Asian economics at HSBC in Hong Kong. “It helps exports, but it hardens financial conditions.”
However, inflation is slowing as it emerges across Asia, and the ADB said the risk posed by the financial conditions caused by the US is “manageable today”. He said that economies like Sri Lanka and Laos would be weak if such a shock happened.
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Some Asian economies are well positioned in the coming years, especially Taiwan and South Korea, which are under the influence of semiconductor cycles. “Given the shortage of semiconductors, it doesn’t look like the electronics cycle will deteriorate in the next two or three quarters. That draws them on this bleak patch,” Neumann said.
But other Asian economies will find themselves in a position not so well known to grow in domestic demand. One of the biggest question marks is China itself, as first-quarter numbers suggest the economy has lost some momentum.
“China’s domestic demand has yet to make its way,” Cochran said. “Right now we expect to see 8 percent growth in China in 2021, but it depends on policy makers and how they turn on speed and introduce friction in areas like construction.”
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