The Asia Pacific region sees ‘a reshuffling of growth prospects’ as Northeast Asia ‘no longer leads the recovery table unambiguously’

18 September, 2020

The world is entering a more difficult stage of recovery, with the post-lockdown GDP bounce expected to give way to slower growth in coming quarters, warns global forecasting and quantitative analysis specialist Oxford Economics. This not more evident than in the Asia Pacific region where it notes that the Covid-19 pandemic control has broadly deteriorated following the widespread easing in social distancing measures since mid-2Q 2020.

An update to its economic outlook continues to point towards a staggered recovery in the region, but the rankings show some noteworthy shifts compared to its original scorecard, published in Jun-2020. In its latest research briefing for the Asia Pacific that takes into account recent economic and pandemic related developments, it continues to indicate a multi-speed recovery for Asia Pacific countries in 2H 2020.

However, it says “prospects have shifted substantially for some countries, such as Vietnam, Hong Kong and Singapore” and that notably, “Northeast Asia no longer leads the recovery table unambiguously.”

Comparing this Asia Pacific scorecard with the original Asia scorecard (Australia and New Zealand have been added in this latest version to broaden its analysis), the latest scores point to substantially weaker outlooks for Vietnam and Hong Kong, while prospects for Singapore and Malaysia have improved. “The changes are largely due to shifts in stringency and containment scores,” it explains.

CHART – New Zealand tops the updated Asia Pacific recovery scorecard of Oxford Economics, while India stands out for the wrong reasons(Source: Oxford Economics / Haver Analytics / CEIC / WDI / Blavatnik School of Government / and other national sources)

The Oxford Economics growth projections for the region ”continue to broadly reflect the factors underpinning the recovery scores,” it explains. India has the most pessimistic growth outlook within the region and it has further downgraded its 2020 growth forecast to -10% from -5.7% prior, given that there are “no signs of the pandemic being contained yet and the low probability of a meaningful fiscal follow-through from the centre”.

It has also scaled back growth projections for the Philippines and Hong Kong and left them unchanged for Indonesia, “despite a better-than-expected outcome in 2Q 2020. At the other end of the spectrum are Taiwan and Singapore, where it has “nudged up” 2020 growth and notably, no longer expects a full-year contraction for Taiwan.

Oxford Economics has also upgraded its 2020 China growth forecast (albeit with a modest downward revision for 4Q 2020 and 2021 more recently). The economy in the country has “already having returned to growth in 2Q 2020,” it says. Meanwhile, in the case of New Zealand, it expects “the economic damage” in 1H 2020 and the renewed tightened restrictions in Auckland to lead to “a slower recovery in 2H 2020”.

CHART – Oxford Economics says its growth projections ‘broadly’ follow its recovery ratings with just Vietnam, China and Taiwan not seeing negative growth in 2020 (Source: Oxford Economics / Haver Analytics)

On a global scale, Oxford Economics says data confirms that the initial post-lockdown phase of the recovery has been robust and points to a record-breaking rise in GDP in 3Q 2020. Effectively, we could now expect the huge 2Q 2020 fall in global GDP to be broadly reversed in 3Q 2020, according to the global forecasting and quantitative analysis, but will still be over -4% below the 4Q 2019 level, a bigger fall than the peak-to-trough decline in global GDP during the global financial crisis.

It warns that there are already signs that some sectors are beginning to lose momentum and beyond 3Q 2020 growth looks set to slow notably. It has therefore revised its forecast for global GDP growth for full year 2021.

This has also been influenced by the increasing certainty that we now assume a Covid-19 vaccine will not be in circulation until the middle of next year, about six months later than previously assumed, resulting in a more prolonged period of social distancing measures and weaker growth between 4Q 2020 through 2Q 2021.

“Although we still expect average quarter-on-quarter global GDP growth to broadly match that seen during 2010 – the best year since the global financial crisis – we now see GDP expanding by +5.4% in 2021, 0.4pp lower than a month ago,” it says.

Despite the forecast revision and the assumed longer and slower transition to normality, Oxford Economics still expects the average quarterly pace of growth in 2021 to match that seen in the early stages of the recovery after the global financial crisis, though it acknowledges that “risks to the forecast still lie firmly to the downside though”.