Five Economic Charts to Watch in Q4 2020 and Beyond: Asia Pacific

As the world continues dealing with the COVID-19 pandemic, countries in the Asia Pacific region have fared better than other parts of the world in containing the virus. However, regional and global economic shutdowns have had a severe impact on the region’s economies. Let’s examine some of the data that will guide us in monitoring the Asia Pac economies for the remainder of 2020 and into 2021.

Most Asia Pac Economies Will See Sharp GDP Contractions in 2020

While the Chinese economy is expected to see its real GDP growth slow from 6.1% in 2019 to just 2.0% in 2020, it is one of the few bright spots in the region. Japan and Hong Kong had already slipped into recession at the end of 2020, even before the pandemic hit. Japan’s economy is projected to shrink by 5.4% in 2020, matching 2009’s contraction during the Global Financial Crisis (GFC); meanwhile, Hong Kong will see a 6.2% decline in GDP. But the biggest reversals of fortune are in India and the Philippines. The Indian economy already saw its growth easing in 2018 and 2019, with GDP expansions of 6.1% and 4.2%, respectively; the economy is expected to contract by 8.2% in 2020. At the same time, the Philippines, which saw an economic expansion of 6.0% last year, is expected to register an economic downturn of 8.5% in 2020. While it may take some time for tourism revenue in the region to recover, these goods-export-dependent economies will benefit from a rebound in goods demand from Europe and the U.S. in 2021.

India Sees Signs of Recovery

The Indian government imposed a strict national lockdown in March which remained in effect through the end of May with some relaxations gradually allowed. This action effectively brought the economy to a halt. Starting in June, restrictions were lifted every month with the phases of reopening dubbed “Unlock 1.0,” “Unlock 2.0,” etc. These phases focused on gradually opening more economic activities, but the lockdown took a heavy toll. Business confidence, which had already been in decline over the last two years, fell sharply between the first quarter and the third quarter of 2020. The Dun & Bradstreet Composite Business Optimism Index dropped from 63.0 in the first quarter to 49.4 in the second quarter and to 29.4 in the third quarter. However, in response to a pickup in economic activity and supportive action by the Reserve Bank of India, the index recovered some of its losses in the fourth quarter (the survey was carried out in September and October), jumping to 46.2 to end the year.

The country is currently in Unlock 6.0 for the month of November, with states and local governments imposing targeted restrictions in response to pockets of outbreaks. The country saw its number of COVID-19 cases peak in mid-September at nearly 100,000 daily cases; in November, new cases have averaged approximately 44,000 per day according to the World Health Organization, with daily fatalities averaging 500.

Hong Kong Tourism Has Plummeted, Taking a Toll on the Economy

The global COVID-19 pandemic hit the Hong Kong economy as it was still dealing with the negative economic impact of 2019’s domestic civil unrest and global trade tensions. In the third quarter, Hong Kong’s real GDP contracted by 3.5% compared to a year earlier, the economy’s fifth consecutive quarterly contraction. The loss of tourism spending is a key factor in the country’s economic woes. September tourism data shows a sharp drop in total visitor arrivals in Hong Kong this year, led by a plummet in travelers from mainland China. For the month, according to the Hong Kong Tourism Board, just 9,132 visitors came to Hong Kong compared to 3.2 million in January, a staggering 99.7% decline. Analysts surveyed by FactSet expect the economy to recover strongly in the first half of 2021, assisted by the rebound in China’s economy, with annual real GDP growth of 4.0% projected in 2021.

Australia Growth Returns in the Second Half of 2020

Australia has been very successful at containing the spread of COVID-19 as a result of international and state border closures, lockdowns, and widespread testing and contact tracing. However, the economic impact has been severe. Australia’s record 29-year economic expansion came to end in 2020 as the economy shrank in the first two quarters of the year. Real GDP is expected to increase on a quarter-over-quarter basis in the second half of the year, but analysts surveyed by FactSet expect a 3.4% contraction for 2020.

A positive sign for the outlook is the recent increase in sentiment among both businesses and consumers. In October, the National Australia Bank’s business confidence index jumped to 4.7 from -3.8 in September. This was the highest reading since May 2019. At the same time, the Westpac-Melbourne Institute consumer sentiment index rose to 107.7 in November following a reading of 105.0 in October; the November figure was the highest in seven years.

The surge in confidence follows aggressive interest rate cuts by the central bank. The Reserve Bank of Australia (RBA) cut interest rates three times in 2019 by a total of 75 basis points. In 2020, the RBA has instituted three additional rate cuts, bringing the target cash rate to 0.10%. While the question of negative interest rates continues to come up, RBA Governor Philip Lowe continues to assert that the central bank will not follow other countries down this road.

ASEAN Countries Cut Interest Rates in Response to the Pandemic

To help stimulate their economies during the global pandemic, central banks around the world have been lowering interest rates. The cuts have been especially steep among the ASEAN countries, which had more leeway to do so than many other central banks where rates were already near, at, or below zero. In fact, Bank Indonesia and the Central Bank of the Philippines both cut their policy rates during the month of November. As shown in the table below, the ASEAN central banks have instituted between three and five cuts so far this year, with the cuts totaling between 75 (Thailand) and 200 (Philippines) basis points (bp).

2020 ASEAN Policy Rate Changes

Source: Various country central banks