The Asia Pacific region continues to deal with the COVID-19 pandemic with travel and business restrictions remaining in place across many countries. Continuing COVID-19 outbreaks and lagging vaccination rates could delay economic recoveries across the region. Let’s examine some of the data that will guide us in monitoring the Asia Pac economies for the remainder of 2021.
Strong Economic Recoveries Expected in 2021
China’s economy was one of the few bright spots in 2020 with an expansion of 2.3%. The worst hit economies in the region last year were the Philippines, which saw a 9.3% contraction in real GDP, and India, which contracted by 7.3%; both countries are expected to have strong rebounds in 2021 according to analysts surveyed by FactSet. While most of the region saw strong growth in the second half of 2020, the resurgence of the virus in early 2021 caused many countries’ economies to contract in the first quarter. The Philippines (-12.0% q/q), Malaysia (-4.1%), Hong Kong, China (-2.3%), and Japan (-1.0%) all saw GDP declines to start the year. Among the largest economies, India is currently expected to lead the region with 10.2% growth this year, followed by China (8.5%), and Hong Kong, China (7.5%). South Korea and Japan lag with growth forecasts of just 3.6% and 2.7%, respectively.
Japan: Will Economic Expansion Lead to Inflation?
The Japanese economy saw strong growth in the second half of 2020, growing by 22.9% in the third quarter (q/q annualized rate) and 11.7% in the fourth quarter. However, the economy contracted by 3.9% in the first quarter as January's national state of emergency severely impacted activity. As we near the end of the second quarter, the good news is that Japan’s inflation rate is increasing. While May’s overall CPI was down 0.1% compared to a year ago, core CPI (excluding fresh foods) was up 0.1% over May 2020. Japan has been battling persistent deflation and has maintained a negative policy rate for the last five years. This is a sharp contrast with Europe and the U.S., where consumers are facing rapidly rising inflation and mounting market concerns about central bank interest rate hikes.
Analysts hope that a pickup in vaccination rates and consumer spending will spur GDP growth as well as inflation in Japan. Unfortunately, the upcoming summer Olympic Games in Tokyo will not bring with it a surge in foreign tourists, as travel restrictions remain in place and events will be limited to just domestic spectators. Still, economists surveyed by FactSet expect the Japanese economic expansion to continue through the end of 2021 and beyond, with real GDP expected to grow by 2.7% in 2021, followed by 2.3% growth in 2022 and 1.3% in 2023.
India’s Lockdowns Lead to Trade and Current Account Surpluses
Last year, because of the national lockdown at the start of the pandemic, domestic economic activity came to a halt and India’s imports plummeted in the second quarter of 2020. Exports fell as well because of similar lockdowns in the rest of the world, but the collapse in imports far exceeded the drop in exports. India typically runs a significant trade deficit, averaging $12.5 billion in the decade preceding the pandemic; however, in June 2020, the country ran a trade surplus of $650 million. Largely as a result of the shrinking of the trade deficit, India’s current account balance recorded a rare surplus for three consecutive quarters, surging to 3.7% of GDP in Q1 FY2021 (April-June 2020) and 2.4% of GDP in Q2 FY2021 (July-September 2020). But in the third fiscal quarter of 2021 (October-December 2020), the current account returned to a deficit.
The surge in COVID-19 infections that India saw in April and May of this year in its second wave has now retreated, and states are beginning to ease up on the latest round of restrictions. Not surprisingly, the renewed lockdowns once again forced consumers to pull back on spending and imports fell sharply in May, pushing the trade deficit to $6.3 billion, its lowest level since September 2020. We’ll have to wait a few months to see if the June trade data results in a current account surplus for Q1 FY2022.
Bullish Outlook for Australia
The Australian economy’s contraction in the first half of 2020 marked the country’s first recession since 1991. The economy appears to be staging a solid recovery, having expanded for three consecutive quarters. In the first quarter of 2021, real GDP grew 1.8% compared to the previous quarter and was up 1.1% from a year earlier. Private investment has been the main contributor to the expansion over the last three quarters. After hitting a record high in April of 23.5 points, the business confidence index produced by National Australia Bank (NAB) slipped to 19.8 in May, a still-solid reading.
At the same time, consumers’ sentiment is waning a bit in the face of extended lockdowns in some parts of the country. The Westpac-Melbourne Institute consumer sentiment index dipped in June to 107.2 from 113.1 in May. While a reading above 100 indicates that there are more optimists than pessimists, the continued economic recovery largely depends on the continued optimism of Australian consumers.
The Singapore Economy Begins 2021 on a Positive Note
The Singapore economy expanded by 1.3% in the first quarter of 2021 compared to the same quarter a year ago; this was the fastest GDP growth since the fourth quarter of 2019. However, the government warned of “heightened uncertainties in the economic environment” due to the COVID-19 pandemic, even as it maintained its growth forecast for 2021 at 4% to 6%. Singapore plays a key role in intra-regional trade and travel, making it especially vulnerable as many of its neighbors continue to deal with outbreaks. With nearly 35% of its population fully vaccinated against COVID-19, Singapore leads the rest of Asia on this front, but the country still has a long way to go.
Senior Marketing Content Specialist and Economic Contributor
Ms. Sara Potter is a Senior Content Specialist and Economic Contributor at FactSet. In this role, she develops a wide range of marketing content, as well as curates and contributes to the FactSet Insight blog, providing commentary on a wide range of economic and market topics. Since joining FactSet in 1999, she has led application and content development teams, focusing on the development of products to facilitate the analysis of global markets at a macro level. Prior, she held research economist positions at Toyota and Standard & Poor’s/DRI (now IHS Markit). She earned an M.A. in International Economics and Finance from Brandeis University and a B.A. in Math/Economics and French from Dartmouth College. She is a CFA charterholder.
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