Asia-Pacific recovery uneven but still on track for 7.1% growth, says S&P

June 30, 2021

SINGAPORE -- Asia-Pacific's recovery is mostly on track, with early stumbles during the vaccine rollout giving way to redoubled efforts to vaccinate and open up, according to a report published today by ratings agency Standard and Poors, titled "Asia-Pacific's Recovery Regains Its Footing."

The constraint is still domestic demand, especially private consumption, says Shaun Roache, Asia-Pacific chief economist at S&P Global Ratings. "External demand is robust and this has helped lift manufacturing investment."

Patchy performance in the second stage of the pandemic means the region's recovery will remain unbalanced for a while longer, he says.

Exports are contributing to some upward revisions to S&P growth forecasts for 2021, but as many trading partners reopen and consumers spend more on services, the impulse from exports will wane, he adds.

"Private consumption is exerting a drag, and while we expect an improvement in the next few quarters, much depends on the pace of the vaccine rollout.

"Our expectation is that reaching key vaccination thresholds -- especially the 70% level identified by the World Health Organization -- will determine how quickly consumption rebounds.

"For China, Korea, and Singapore, this may come in the third quarter. Australia and Japan should follow, perhaps in early 2022, while the emerging market economies will lag."

In most cases, Roache says, activity remains well below S&P's pre-COVID forecasts, with gaps between activity and the pre-pandemic trend also suggesting that the rise of inflation across the region is, for the most part, transitory.

"Strong demand for durable goods globally should ease as economies reopen and people are able to spend on services, from hotels to restaurants," he says.

"This effect has been powerful -- for example, while overall real household spending in Korea was still soft in the first quarter, spending on durables such as laptops and washing machines was 25% above trend."

Roache says:


"Our China forecast is now a higher 8.3% on accelerating vaccinations. Trade is boosting Hong Kong, up 2.3% to 6.5%.


"We revise Australia up to 4.9% (from 4.0%) as the labour market roars back.


"A strong tech sector boosts our Taiwan forecast to 5.6% (from 4.2%), even with setbacks on the pandemic front.


"India falls to 9.5% from 11.0% (for the fiscal year ending March 31, 2022) due to a severe pandemic wave.


"Japan reduces to 2.5% as private consumption remains soft.


"Other COVID-related downward revisions include Malaysia, Thailand, and the Philippines." (ATI).