Asia-Pacific growth slowing on COVID and rising China uncertainty

September 28, 2021

SINGAPORE -- Growth outlooks for the remainder of 2021 have weakened moderately in Asia-Pacific due to persistent COVID-19 waves, with S&P Global Ratings now projecting Asia-Pacific growth at 6.7% this year, down from its previous forecast of 7.5%. 

S&P says the outlook for the region is now stabilising. Vaccination coverage has increased substantially, and there is an increasing policy shift toward greater tolerance of COVID-19 outbreaks, especially in the emerging markets. These factors will enable gradual reopening of economies.

"We forecast growth of 5.2% for the region in 2022 as base effects fade from the data, and our forecast is unchanged from previously," the agency says.

"Our forecast for China has been revised down 30 basis points to 8.0% growth for 2021 as private demand recovery still looks soft and there is higher near-term uncertainty.

"Our 2021 GDP growth projection for India is unchanged at 9.5%.

"We revised our 2021 growth forecast lower for the Southeast Asia emerging markets by 1.2% to 3.1%. For the high-income Asia economies, we forecast growth of 3.6%, down from 3.8% previously, as international trade is supporting growth even as domestic demand weakened."

New Zealand and Singapore are the only economies  expected to have faster growth in 2021 than S&P's  previous forecast in June.

"One downside and rising risk relates to a changing growth path in China," said Paul Gruenwald, global chief economist for S&P Global Ratings.

 "New regulations and policies are aimed at common prosperity and greater self-reliance through dual circulation, which mark a shift in China's growth strategy."

Inflation pressures are still muted in much of the region. However, core price inflation has picked up in some economies, including in China, Australia, New Zealand, and India. In the rest of Asia, core inflation remains low, given lockdowns and the resulting weakness in domestic demand.

S&P says central banks of high-income Asia-Pacific countries are at the global vanguard of monetary policy normalisation.

"The Bank of Korea became the first major central bank in the region to hike policy rates, in August, over concerns about elevated debt and financial stability. The Reserve Bank of New Zealand halted asset purchases in July and may be poised to hike interest rates soon.

"These moves come ahead of the U.S. Federal Reserve and the European Central Bank where policy normalization is more gradual.

"Meanwhile, central banks in emerging markets remain on hold as inflation pressures are broadly controlled. Central banks in emerging Asia have some cause to ease policy, given that output gaps are negative.

"However, they are wary of tapering asset purchases and higher rates in the U.S., which could result in capital flow pressures in the region." (ATI).