Q1 2020

We’ve slashed our forecast numbers for Asian economies. In the process, we’ve had to rethink the drivers and risks in all economies. Some commentators expect a global rebound based on massive stimulus. We don’t think so. The steps taken to curb COVID-19 will damage the balance sheets of households, corporates, financial institutions, and governments. Demand is a function of the health of balance sheets and repairing balance sheets will take several years.

The main challenge for countries is the containment effort rather than the virus. Fortunately, the containment efforts in many Asian countries have been extensive, particularly in China. Since China is now a major supplier of demand (including tourists) and goods to other countries, what happens in China will have a significant flow-on effect on other countries in this region.

China to recover slowly after a disastrous first quarter

Real GDP is now expected to grow at the rate of 1.6% in 2020, a sharp drop from the 6.1% growth rate recorded in 2019. Economic growth is not expected to return to the average pre-outbreak levels of 8.2% recorded in 2008 to 2017. However, 2021 promises to bring an uptick to 5% GDP growth, which China should be able to sustain (barring any economic crisis) for years to come.

Covid-19 has hit China’s manufacturing sector the hardest with growth expected to slow to 0.6% in 2020. Manufacturing is unlikely to return to pre-Covid-19 average growth levels of 8.7% per annum as buyers diversify their sources of manufactured products. Still, we expect that growth of China’s manufacturing sector will stabilise at 4-4.5% growth per annum from 2021 onwards.

China’s consumer demand has also taken a significant hit with this sector’s growth expected to slow to 1.5% in 2020. A sharp rise in unemployment (9% in 2020, up from 3.6% a year earlier) has further contributed to consumer caution. Demand growth going forward will follow a similar trajectory as manufacturing, stabilising at 5-5.5% in the next few years.

Economies in southern Asia’s tier to shrink

In February, we cut our GDP growth for the 14 major markets of the Asia Pacific region to 4.1%. Our outlook for 2021 also dropped from 4.6% to 4.3%. Needless to say, that forecast now looks wildly optimistic. It looks like COVID-19 will be challenging for countries in southern Asia countries, particularly the Philippines, Indonesia, Thailand, and India. We now forecast that GDP in 2020 will contract by roughly 4-5% across all countries in South and Southeast Asia.

GDP growth in Asia’s southern tier should experience a modest rebound in 2021, growing by 3-4% from a much smaller base. Although these forecasts represent a sharp drop from previous projections, we may need to cut them further in our next update.

North Asia fares a bit better

Growth in North Asia is expected to take a hit, but not on the scale of China or southern Asia. These countries have been relatively successful in containing the virus’s onslaught. Despite Taiwan’s proximity to the origin of the outbreak, it has among the fewest number of cases and deaths in Asia attributed to Covid-19. Consequently, we expect Taiwan’s GDP to still experience growth of 0.5% in 2020, down from 2.7% in the prior year.

Initially, Covid-19 hit South Korea hard; however, strict containment efforts seem to have borne fruit. Nevertheless, we expect that the economy will contract 2.9% in 2020. South Korea’s recession is likely to be short-lived and the country should return to pre-crisis levels of 2-3% GDP growth in 2021.

Even though the virus has somewhat spared Japan (apart from the Diamond Princess cruise ship), Covid-19 has hit Japan’s already sluggish GDP growth. We expect that the country’s economy will shrink 3.1% in 2020 after 0.7% growth in 2019. Japan’s GDP should slowly recover from the lower base by a modest 1.8% in 2021. The outlook is for stagnant growth in the years afterwards.

Given the way the COVID-19 crisis is evolving, we’ll be regularly updating this forecast. China forum members are also getting a weekly tracker report on the latest China market data. Our Asia Brief Excel does much the same for all of Asia and we’ll put them on a faster update and release cycle.

IMA members can download a full copy of the latest Asia forecasts by logging in to the Members Area and selecting from several Powerpoint, Excel and PDF documents.

The monthly Asia Brief is available to IMA members only.  Non-members can read a sample issue by clicking here.


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