Asia-Pacific forecasts stabilise, risks now balanced, says report

SINGAPORE - S&P Global Ratings says that economic trajectories for Asia-Pacific are stabilising. It expects Asia-Pacific GDP to shrink about 2% in 2020 and to grow by 6.8% in 2021, close to previous S&P forecasts at the end of the third quarter. "Uncertainty remains unusually high, but little in the past three months has led to large revisions to our views," S&P says.

"In uncertain times, we need to pay much attention to the risks around forecasts," said Asia-Pacific chief economist Shaun Roache. "Growth can be better or worse than we think, and, for the first time in 2020, we see the probability of both being roughly the same."

Roache says that, most importantly, the probability has risen of a safe and effective vaccine rolling out earlier than S&P's baseline assumption of the second half of 2021. "All the logistical challenges remain. Still, an early rollout would mean both a faster normalisation with less permanent damage to labour markets and balance sheets than we currently assume in our forecasts."

Roache says there are other positive developments. Jobs have stabilised and some laboru markets have shown unexpected vigour. "A new U.S. Administration lowers the risk of an acute escalation in economic conflict with China. The Regional Comprehensive Economic Partnership (RCEP) inks the first broad Asia-Pacific free-trade agreement in history.

"These developments either lower the probability of very bad outcomes or increase the probability of faster growth in the next 12 months and beyond. After a difficult year, this is new."

S&P says an early vaccine rollout would bring forward the recovery next year, and that, even if a recovery came one quarter earlier, it would have a large effect on growth for the full year, speeding up domestic normalisation by re-opening affected sectors and reducing voluntary social distancing.

Tourism and travel would return faster, albeit with a lag. Still, trials data are preliminary and logistical challenges remain, so we maintain our assumption of wide distribution in the second half of 2021, for now."

Fewer jobs were lost than expected, helped by timely policy interventions, including wage subsidies. Jobs are also rebounding faster than expected.

Several governments have announced budgets that provide support to the economy through much of 2021.

www.standardandpoors.com (ATI).