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The Asia-Pacific (APAC) region experienced a severe recession
in 2020 due to the COVID-19 pandemic, with APAC GDP contracting by
an estimated 1.5% year-on-year (y/y). A strong economic recovery is
expected in 2021, with APAC GDP growth forecast at 5.7% y/y, based
on expectations that the progressive rollout of COVID-19 vaccines
during 2021 will help the gradual recovery of economic activity in
many OECD and APAC economies.
A key factor underpinning the strong economic rebound in the
APAC region is expected to be buoyant economic growth in China,
which is forecast to grow at 7.5% y/y in 2021. The Asia-Pacific
recovery is expected to be broad-based, with most major
Asia-Pacific economies forecast to show rapid growth in 2021.
However with large new waves of COVID-19 cases having engulfed
many countries in recent months, including the UK, EU and Japan,
this year is likely to be characterized as a "Year of Uncertainty",
with considerable risks around how quickly vaccines can be deployed
and how rapidly the pandemic will be brought under control in
different countries.
Key drivers for APAC GDP growth in 2021
The APAC region's recession of 2020 was worse than either the
Global Financial Crisis or the East Asian Financial Crisis, as
measured by GDP growth in the APAC region as a whole. A key factor
contributing to the contraction in APAC growth in 2020 was the
sharp slowdown in China's economic growth rate to an estimated pace
of 2.1% y/y. In contrast, during the East Asian Crisis, China
recorded GDP growth of 7.9% y/y in 1998, while in the Global
Financial Crisis China grew at 9.4% y/y in 2009.
Furthermore, India is estimated to have suffered a severe
recession in 2020, whereas during the East Asian Crisis and during
the Global Financial Crisis, India recorded positive annual GDP
growth.
Pandemic-related lockdowns and travel bans had a severe negative
impact on the economies of most APAC nations during the first half
of 2020. However, during the second half of 2020, many Asia-Pacific
economies had already been showing significant recovery in economic
momentum. This upturn was driven both by strengthening global
export demand as well as the rebound in domestic consumption
spending as a result of the easing of pandemic-related restrictions
in many countries.
IHS Markit's PMI survey index of manufacturing output in APAC
has recovered strongly in recent months, signalling the strongest
expansion n of production in a decade during the closing months of
2020, albeit with the rate of expansion cooling slightly in
December, though this was in part due to shipping delays caused by
the sheer strength of demand.
Economic recovery is forecast to continue during 2021, helped by
the expected progressive rollout of COVID-19 vaccines in many OECD
and APAC nations during the course of the year. This is expected to
help to gradually contain the pandemic, allowing domestic economic
activity to strengthen through 2021.
With world GDP expected to rebound to positive growth of 4.5%
y/y in 2021 after a contraction of 4.0% y/y in 2020, this will
provide a boost to the export sectors of many export-driven APAC
economies. The rebound in economic growth in advanced economies
such as the US, EU, UK and Canada linked to the rapid rollout of
vaccination programs during the first half of 2021 is expected to
support APAC new export orders to key export markets in North
America and Europe.
However international travel restrictions are still expected to
remain a major impediment to the recovery of international tourism
and business travel in the APAC region during 2021. Consequently,
APAC economies where domestic tourism accounts for a large share of
total tourism, such as China, Japan and Australia, are likely to
experience more rapid recovery in their tourism and travel
industries than nations more reliant on international tourist
visitors.
China's economic rebound
China's economy suffered a severe negative shock in the first
quarter of 2020 due to the protracted shutdown of industrial
production and severe restrictions on consumer expenditure due to
lockdowns.
However, economic activity improved significantly during the
second quarter of 2020, as industrial production rebounded and
consumption spending gradually improved. The Chinese economy showed
a strong recovery in economic momentum during the second half of
2020, helped by buoyant exports as well as a gradual normalization
of domestic economic activity. China's industrial production grew
by 7.0% y/y in November 2020, with manufacturing up 7.7% y/y while
retail sales rose by 5% y/y.
China's merchandise exports rose by 21.1% y/y in November 2020,
helped by strong demand for PPE equipment and electronics, with
buoyant exports to key markets, notably the US and EU. This pushed
China's trade surplus for November to USD 75.4 billion, the highest
monthly trade surplus since 1981.
The latest Caixin China Manufacturing Purchasing Managers' Index
for December 2020 was at 53.0, continuing to signal positive growth
in the manufacturing sector, albeit moderating from 54.9 in
November. The manufacturing new orders and export orders PMI series
also continued to signal expansion.
The headline seasonally adjusted Caixin China General Services
Business Activity Index also continued to show strong expansion in
December, at a level of 56.3, albeit moderating from 57.8 in
November. The rate of expansion continued to be among the steepest
recorded over the past decade.
Japan faces new pandemic wave
The Japanese economy is meanwhile estimated to have contracted
by 5.4% y/y in 2020, due to the impact of the pandemic both on
domestic economic activity as well as on new export orders for
Japanese manufacturing exports. During the first wave of pandemic
cases during the second quarter of 2020, the Japanese government
imposed a state of emergency to contain the pandemic, which was
temporarily successful.
However, a major new upsurge in cases that intensified during
December 2020 has resulted in the Japanese government imposing a
second state of emergency decree on Tokyo and several nearby
prefectures. National daily new COVID-19 cases exceeded 6,000 on
6th January 2021. The state of emergency is due to run from January
8th to February 7th 2021, although its scope will initially be
relatively limited compared with the 2020 state of emergency. This
is expected to have a significant impact on Japanese GDP in the
first quarter of 2021, particularly on consumption expenditure on
retailing and dining out.
Consequently, the rollout of COVID-19 vaccines is likely to play
a critical role in the gradual economic recovery of the Japanese
economy during 2021. Japan has sufficient orders in place for three
vaccines that are already approved for use in the US, UK and EU,
namely the Oxford/AstraZeneca, Moderna and the Pfizer/BioNTech
vaccines. Sufficient quantities of vaccines are on order to make
significant progress towards inoculating the population by
mid-2021.
Based on the expected imminent commencement of Japan's
immunization program, Japan's GDP is expected to return to positive
growth of 2.6% in 2021. The latest headline au Jibun Bank Japan
Manufacturing Purchasing Managers' Index rose from 49.0 in November
to reach the 50.0 no-change threshold in December, the highest
reading of Japan's Manufacturing PMI since April 2019.
Economic activity in Japan's services sector remained resilient
during the fourth quarter of 2020 despite the latest pandemic wave.
The seasonally adjusted Japan Services Business Activity Index
dipped fractionally from 47.8 in November to 47.7 in December, and
continued to signal a moderate contraction in activity, albeit at a
much higher level of economic activity compared with the first half
of 2020.
Indian economic recovery
The Indian economy also suffered a severe recession in 2020,
with GDP in the fiscal year 2020-21 estimated to have contracted by
8.9% y/y. However, the worst contraction occurred during the period
from March until August, with the economy having shown a strong
rebound in economic activity since September. During the fourth
quarter of 2020, India's industrial production and consumption
expenditure have shown a rebound. October data showed that
industrial production grew by 3.6% y/y, compared with a steep
contraction of -55.5% in April 2020.
The seasonally adjusted IHS Markit India Manufacturing
Purchasing Managers' Index was at 56.4 in December, a figure
consistent with strong positive expansion and above the critical
50.0 neutral threshold for the fifth straight month. The latest
figure was consistent with a marked improvement in business
conditions across the manufacturing sector. Reflecting the
loosening of COVID-19 restrictions, strengthening demand and
improved market conditions, factory orders increased during
December.
Although India faces a vast challenge to vaccinate its
population of 1.4 billion people, it is about to commence its
COVID-19 vaccination program. India's health regulator has approved
the Oxford/AstraZeneca vaccine for emergency use. An important
advantage for India is that the Oxford/AstraZeneca vaccine is
already being manufactured in India by the Serum Institute of
India, which projects that it will be able to manufacture 100
million COVID-19 vaccine doses per month by April 2021.
With the Indian economy already showing a significant
improvement in domestic economic activity in the fourth quarter of
2020, the outlook is for Indian GDP growth to rebound by 8.9% y/y
in the 2021-22 fiscal year.
Electronics sector output rebounds after COVID-19
related disruptions
The electronics manufacturing industry is an important part of
the manufacturing export sector for many East Asian economies,
including China, South Korea, Taiwan, Malaysia, Singapore,
Philippines, Thailand and Vietnam. Furthermore, the electronics
supply chain is highly integrated across different economies, with
China being an important supplier of intermediate electronics parts
for a number of Southeast Asian electronics sectors.
Despite severe disruptions to Asian electronics production and
to global demand due to the pandemic during the first half of 2020,
the IHS Markit Global Electronics PMI has signaled a significant
rebound since mid-2020. The headline seasonally adjusted PMI rose
to 53.4 in November 2020, up from 51.8 in October. The latest
reading pointed to the quickest improvement in the health of the
global electronics sector for over two years, amid stronger
increases in both output and new orders.
Global electronics new orders rose from a calendar year-to-date
low of 34.7 in May to a level of 52.8 by November, reflecting a
significant recovery in new orders. The electronics sector rebound
is making an important contribution to the recovery of
manufacturing exports and industrial production in many APAC
industrial economies. China's electronics exports rose strongly in
November, up 24.8% year-on-year due to strong Christmas demand for
consumer electronics in key global markets, notably the US and EU.
In South Korea, semiconductor exports increased 16.4% y/y in
November, boosted by newly launched mobile phone products as well
as increasing sales of mobile phone parts.
Outlook: a year of uncertainty
Despite the expected rebound in global and APAC economic growth
in 2021, there are considerable uncertainties about how rapidly
vaccines will be deployed and how effective these may be in
bringing the global pandemic under control, particularly given
rising concerns about new strains of the virus that have been
reported.
The Asia-Pacific region also faces considerable challenges with
its vaccination programs due to the very large size of the
population in many Asian nations, notably in China and India, the
world's two most populous countries. Indonesia, Bangladesh,
Philippines, Pakistan, Vietnam and Japan also have very sizeable
populations.
Consequently despite the favorable economic outlook for APAC
economic recovery at the outset of 2021, the speed at which
different nations emerge from the pandemic is likely to vary
considerably, depending on many factors including the size of
population, access to large supplies of COVID-19 vaccines and
ability to deploy large-scale immunization programs. There are also
other critical unknown factors, including the duration of
effectiveness of vaccinations for the various key vaccines that are
under development.
Nevertheless, the central case economic scenario for 2021 is
positive, with the world economy expected to be gradually emerging
from the pandemic, with many APAC economies at the forefront of
that recovery.
Rajiv Biswas, Asia Pacific Chief Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
