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World GDP is forecast to rebound to positive growth of 5.8% in
2021 after a contraction of 3.5% in 2020. The rebound in economic
growth in advanced economies such as the United States, the
European Union, the United Kingdom and Canada combined with
continued strong economic momentum in China are linked to the rapid
rollout of vaccination programs and containment of domestic new
COVID-19 cases during the first half of 2021.
Growth momentum in the US, Eurozone and UK has been buoyant,
with the IHS Markit PMIs for these nations having risen sharply in
the second quarter of 2021 as rapid vaccination rollouts resulted
in sharp declines in COVID-19 waves, easing of restrictive measures
and reopening of economies.
APAC Economic Growth
The Asia-Pacific region experienced a recession in 2020 owing to
the COVID-19 pandemic, with Asia-Pacific GDP contracting by an
estimated 1.1%. Pandemic-related lockdowns and travel bans had a
severe negative impact on the economies of most Asia-Pacific
nations during the first half of 2020. During the second half of
2020, many Asia-Pacific economies had shown a 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.
However, recovery momentum in the Asia-Pacific has suffered
significant setbacks during the second quarter of 2021, as new
COVID-19 waves driven by the highly transmissible Delta variant
have resulted in renewed lockdowns being imposed in many
Asia-Pacific countries. The situation has been aggravated by the
relatively slow progress of COVID-19 vaccination rollouts in many
Asia-Pacific economies compared with the US and Western Europe.
This APAC grouping, perhaps surprisingly, includes some
developed Asia-Pacific nations that are OECD members, notably
Japan, South Korea and Australia. However, they have made better
progress in recent weeks, having ramped up their vaccination
programs. In contrast, Singapore has been the leader amongst the
APAC economies, with a first-dose vaccination rate as a share of
total population that is amongst the highest in the world, on a par
with the UK and Canada.
COVID Waves Roll Across Southeast Asia
Since April, a number of Southeast Asian economies have been hit
by escalating COVID-19 Delta waves. Indonesia, Malaysia, Thailand,
Vietnam, Cambodia and Myanmar are all currently experiencing
significant COVID waves that have triggered lockdowns and are
creating significant disruption to economic activity.
The latest IHS Markit Manufacturing PMI surveys for Southeast
Asia have reflected the impact of these new lockdown measures,
which have disrupted industrial production and consumption
spending.
In Malaysia, the headline IHS Markit Malaysia Manufacturing
Purchasing Managers' Index (PMI) fell sharply in June, to 39.9
compared with 51.3 in May. This pointed to a severe decline in
business conditions in the Malaysian manufacturing sector. The
renewed downturn in June reflected the recent steep rise in daily
COVID-19 infections and associated containment measures, which
again dampened demand, stymied production and disrupted supply
chains.
Vietnam's economy has also been hit by the impact of the latest
COVID wave, after its economy showed considerable resilience during
2020 as the domestic pandemic was successfully contained. The
latest wave of COVID-19 cases in Vietnam led to a sharp decline in
business conditions for manufacturers during June. The IHS Markit
Vietnam PMI dropped sharply to 44.1 in June from 53.1 in May,
pointing to the most rapid deterioration in business conditions for
over a year and ending a six-month period of growth.
The pandemic, lockdown measures and temporary company closures
were all mentioned by firms in Vietnam as factors leading to sharp
reductions in both output and new orders during June. Meanwhile,
new business from abroad also decreased as transportation issues
and container shortages exacerbated the impacts of the rise in
virus cases.
Output and new orders both decreased at the sharpest rates since
the first outbreak of the pandemic in early-2020, while firms
scaled back their employment and purchasing activity accordingly.
The pandemic also impacted supply chains, resulting in a
near-record lengthening of delivery times. For example, four
industrial parks in Bac Giang province in northern Vietnam were
temporarily closed in late May, due to outbreaks of COVID cases,
which also impacted on some manufacturing facilities of Foxconn and
Samsung.
In Indonesia, daily new COVID-19 cases have risen sharply during
June and early July, reaching 40,400 by 12th July. As of July 12,
2021, an estimated 13.3% of the Indonesian population have received
their first vaccinations.
The rapid escalation in domestic COVID-19 cases has led to a
lengthening of lead times for Indonesian manufacturers in June,
with supplier performance deteriorating at the fastest rate since
January, according to the latest IHS Markit Indonesia Manufacturing
PMI survey. The significant escalation in daily new cases is
expected to continue to weigh on economic activity in the third
quarter of 2021 until the latest COVID wave can be brought under
control.
Indian Economy Hit by COVID Wave
India's economic recovery momentum in early 2021 has also been
badly impacted by the recent severe COVID-19 wave that hit the
nation in May and June, although the severity of the latest wave
appears to be receding as daily new cases have declined rapidly
during recent weeks.
India's manufacturing industry fell back into decline during
June, as the intensification of the pandemic and strict containment
measures negatively impacted on demand. Falling new orders,
business closures and the COVID-19 crisis triggered a reduction in
output among Indian manufacturers.
The decline was moderate relative to those seen in the first
half of 2020 but ended a ten-month sequence of growth. The
seasonally adjusted IHS Markit India Manufacturing PMI fell from
50.8 in May to 48.1 in June. The latest results highlighted renewed
contractions in factory orders, production, exports and quantities
of purchases. With business optimism fading over the month, job
shedding continued.
Near-term Economic Outlook
The central case global economic scenario for 2021-22 is
positive, with the world economy forecast to show improving
momentum as COVID-19 vaccination programs are increasingly widely
rolled out globally. World GDP growth is forecast to rise by 5.8%
y/y in 2021, with sustained expansion at a pace of 4.7% y/y in
2022.
Many of the world's largest economies, including the United
States, the European Union, UK and China, have been rapidly
progressing with vaccination programs during the first half of
2021. This has allowed domestic demand to rebound in these nations,
as lockdown conditions have been progressively eased in many
countries that had been experiencing severe COVID-19 waves at the
outset of 2021.
In contrast, many Asia-Pacific economies are still facing severe
COVID-19 waves by mid-2021, while vaccination rollout progress lags
far behind the US and EU. This is delaying the pace of economic
recovery, as new lockdown measures have been imposed in a growing
number of APAC economies. Therefore, the roadmap to sustained
recovery is expected to be closely linked to the timetable for
vaccination of a high share of the total population of an
economy.
Due to ongoing new COVID-19 waves in many Asia-Pacific nations
in 2021, international travel restrictions are still expected to
remain a major impediment to the recovery of international tourism
and travel in the Asia-Pacific region during 2021. This is expected
to result in a more protracted and gradual recovery path for trade
in services for many Asia-Pacific economies. International tourism
and travel is a key contributor to GDP in many Asia-Pacific
economies
Despite these significant headwinds to the outlook, a key factor
underpinning the strong economic rebound in the Asia-Pacific region
has been buoyant economic growth in China, which is forecast to
grow at 8.5% y/y in 2021. China's continued strong economic growth
rate is expected to underpin the overall APAC regional growth rate
in 2021, which is forecast to be 6.3% y/y. In 2022, progress of
vaccine rollouts is expected to allow a wider group of Asia-Pacific
economies to emerge from domestic pandemics and related restrictive
measures. Consequently, continued rapid APAC regional growth at a
pace of 4.9% is expected in 2022.
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.
