Asian demand missing from global recovery, says S&P

February 4, 2021

SINGAPORE -- Asia-Pacific is managing the pandemic well, with health and economic effects far tamer in the region than elsewhere in the world, says S&P Global Ratings. However, S&P  believes the region's slack domestic demand and reliance on exports could restrain its recovery -- and inflame trade tension with the West.

"The popular narrative is that Asia is leading the recovery and digging the world out of a big hole," says S&P Global Ratings Asia-Pacific chief economist, Shaun Roache. "This is not quite right. Demand from the rest of the world is helping Asia out of the hole. This is mainly due to cautious Asian consumers."

Roache says Asia-Pacific contained death rates due to COVID-19 to 81 per million people in early February, compared with 1,066 in the European Union, and 1,339 in the U.S., according to the University of Oxford. "The decline in economic activity at the trough, compared with the pre-pandemic trend, was less than elsewhere," he says. "We expect the permanent damage to output to vary, but on average to be lower than elsewhere, at around 4%-5% of GDP. There are notable exceptions to this trend, especially India."

Short, sharp lockdowns and policies designed to keep people employed, including wage subsidies, have limited job losses and fuelled a rebound in hiring, Roache says. "This will support household income as stimulus inevitably wanes.

"Factory Asia has also benefitted from surging export demand. The story is well-known. Work-from-home measures have boosted electronics demand, consumers have switched some spending from services to goods, and demand for health-care equipment has risen.

"Until Asia starts pulling its weight in the demand recovery, global growth will fail to live up to its potential. The recovery will remain over-dependent on stimulus and consumers in Europe and the U.S.

"Asia may see persistent economic slack, low inflation, and a steady turn lower in expectations for revenue growth for some firms." (ATI).