Faster global growth to boost Asia’s recovery: S&P

March 24, 2021

SINGAPORE -- Asia-Pacific's economic recovery from COVID-19 will be boosted by U.S. stimulus and stronger global demand, despite the COVID vaccine rollout in the region perhaps lagging other parts of the world, says global ratings agency Standard and Poors. S&P Global Ratings expects enough progress with the vaccine to lift consumer spending and domestic demand later in 2021.

S&P has revised upwards its growth forecast for Asia-Pacific to 7.3% for 2021, from 6.8% previously. "A faster-than-expected global vaccine rollout, a large dose of U.S. stimulus, and upside surprises in trade and manufacturing push our forecasts higher and offset recent weakness in household spending," it says.

"We also expect gradual vaccine coverage in the region to encourage a virtuous cycle of higher spending on services, more jobs, and rising incomes to power the next leg of the recovery," said Shaun Roache, Asia-Pacific chief economist at S&P Global Ratings.

"While a three-speed recovery has emerged in Asia-Pacific, we expect the laggards to gain momentum later in 2021.

"The leading group includes China, New Zealand, Taiwan, and Vietnam, where activity is already above pre-pandemic levels. The middle group includes Australia, Japan, and Korea, where activity should reach pre-pandemic levels by mid-2021. India has joined this group following a sharp rebound in recent months," Roache said.

"The lagging group consists mainly of emerging markets, including Indonesia, where uncontained spread of COVID and a slow vaccine rollout mean getting back to pre-COVID levels only in late 2021."

"As the recovery matures, we expect the laggards, mainly emerging market economies, to start closing the growth gap with the leaders, including China."

Inflation in the region should remain subdued, notwithstanding higher commodity prices," Roache said. "A robust service sector rebound, and an associated rise in hiring, will be needed to ignite inflation. We expect subdued inflation in Asia-Pacific to keep most central banks on the sidelines."

Roache said S&P had lifted its forecast for China to 8% in 2021 (from 7% previously) and edged it up to 5.1% for 2022 due mainly to stronger-than-expected exports and lingering momentum in the property market.

"We anticipate a cautious policy stance to dampen investment (in China) later in 2021, while consumption should pick up. For India, we raised our forecast to 11% (from 10% previously) for fiscal year 2021-22 in part due to an expansionary fiscal policy that should boost domestic private spending.

"We maintained Japan's growth outlook at 2.7% for 2021, but revised it higher to 1.8% in 2022 on better prospects for capital goods exports. For Australia's 2021 growth forecast, we kept at 4% after a much better-than-expected 2020."

In emerging markets, including Malaysia, the Philippines, and Thailand, Roache said, S&P saw a delayed but not derailed recovery.

"The weak first quarter will likely push back recovery by about three months in emerging Asia, which will lower growth this year and raise it next year," said.

Vishrut Rana, Asia-Pacific economist at S&P Global Ratings, said: "We revise down Indonesia's growth to a below-trend 4.5% in 2021 (from 5.4% previously) as the COVID wave early this year dented confidence and held back consumer spending.

"Indonesia's output is well below its full capacity level, which should keep underlying inflation below the mid-point of Bank Indonesia's 2% to 4% target range."

"For Malaysia, we forecast growth of 6.2% this year and 5.6% in 2022 from our earlier forecasts of 7.5% and 5.2%, respectively. Rising infections slowed Malaysia's rebound early in 2021, but growth should be supported by trade and manufacturing."

S&P Global Ratings' economic forecasts assume that Asia's emerging economies should withstand rising U.S. bond yields. The recent rise in yields reflect reflation and economic healing, and not a monetary shock in the style of the 2013 taper tantrum, it says. (ATI).