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An increasing number of Asia-Pacific (APAC) economies have been
hit by escalating Covid-19 waves during April and May, reflecting
factors such as increased transmissibility of new Covid-19 virus
strains as well as very low Covid-19 vaccination rates as a share
of population in many APAC economies.
India's rapidly escalating new Covid-19 wave has become a
terrifying human tragedy. A number of other Asian economies,
including Japan, Malaysia, Philippines, Thailand, Singapore,
Vietnam and Thailand have also been impacted by rising new daily
Covid-19 cases. These new waves have triggered a wide range of new
restrictive measures across many APAC economies, which will impact
on domestic demand and the path of economic recovery in coming
months.
New Covid waves hit APAC economies
While rapid vaccination rollout rates in some countries such as
the US and UK have resulted in sharp decelerations in their
domestic Covid-19 waves, many Asian economies with low vaccination
rates have experienced substantial increases in daily new Covid-19
cases since March. In India, daily new Covid-19 cases rose from
15,700 on 2nd March to 414,000 by May 6th, before easing to 267,000
reported daily new cases by May 18th. In Japan, daily new cases
rose from 1,000 on 1st March to 7,700 by 6th May, easing to 3,300
by May 18th. In Thailand, daily new cases rose from zero on 1st
March to 9,600 on 17th May. A number of other Asian economies,
including Malaysia, Philippines and Vietnam, have also seen
significant increases in new Covid-19 cases. Taiwan, which had been
extremely successful in containing new Covid-19 cases during 2020,
has also been hit by a large number of new cases during May.
Covid-19 vaccination rates are extremely low in most Asian
economies compared with global leaders in vaccination rollout such
as the US and UK. Even the APAC nations which are members of the
OECD grouping of advanced economies, namely Australia, Japan, New
Zealand and South Korea, have first dose vaccination rates which
are very low compared to the US, UK and EU. In contrast, Singapore
has led the APAC countries in achieving very high first dose
vaccination rates that are comparable to the global leaders.
The severe escalation in Covid cases across many APAC economies
in recent weeks has been an unfolding human tragedy, with rising
loss of life in many Asian countries, particularly in India, during
April and May. Governments have responded with significant new
restrictive measures to try to contain the new Covid waves. In
India, many states and cities have imposed lockdown conditions
since mid-April. Japan's central government declared a third state
of emergency from 25th April until 31st May, due to the COVID-19
pandemic. Malaysia and Thailand have also imposed significant
lockdown measures to try to contain their escalating new Covid
waves.
Economic impact on APAC economies
Increasingly substantial lockdown measures have been put in
place in many APAC economies since April which are directly having
an impact on consumer spending and industrial production. The
widespread lockdowns that have been implemented in India in many
states and cities since mid-April will increasingly be reflected in
high frequency economic indicators for April and May. Similarly,
lockdown measures in Malaysia, Thailand, Vietnam, Singapore and the
Philippines are impacting on domestic economic activity.
In India, a number of monthly economic indicators for April have
already shown significant contraction, although more severe impact
effects are expected for May as many parts of the nation have
remained under strict lockdown conditions.
Falling from 54.6 in March to 54.0 in April, the India Services
PMI Business Activity Index pointed to the slowest increase in
output for three months. The latest reading still signaled
expansion, albeit moderating. Anecdotal evidence indicated that
ongoing growth of new work underpinned the rise in output, which
was nevertheless stymied by the intensification of the Covid-19
crisis.
India's auto manufacturing sector has already been badly hit
during April by the pandemic escalation and lockdown measures. Data
from the Society of Indian Automobile Manufacturers for April
showed that sales of passenger vehicles fell by about 10% m/m
compared to March 2021, reflecting widening lockdown restrictions
across many states. Sales of two-wheelers fell by 33.5% m/m. The
Indian electronics sector has also been hit by the escalating
pandemic. India's cement industry has also been badly hit by the
impact of lockdowns on construction activity, resulting in sharp
declines in cement output. In the electronics sector, the Foxconn
iPhone12 factory in Tamil Nadu is reported to have cut production
by 50% for health reasons due to Covid-19 cases.
A key disruption to economic activity has been due to a number
of Indian ports declaring force majeure for various periods during
May 2021 with reduced operations due to the impact of lockdowns and
staffing shortages as a result of the pandemic. Indian ports that
have declared force majeure with reduced operations in May include
Visakhapatnam, Gangavaram, Vizag, Kandala, Karaikal, Gopalpur,
Mangalore and Chennai. This is creating significant supply chain
disruptions to imports of key raw materials and intermediate goods,
as well as impacting on India's export shipments. Compounding
India's port sector problems, Pipavav port has been forced to halt
operations during late May until the beginning of June due to
infrastructure damage caused by Cyclone Tauktae.
Japan's Q1 2021 GDP was also impacted by tighter
pandemic-related restrictions related to the state of emergency,
contracting by 1.3% quarter-on-quarter, or down 5.1% at an
annualized rate. A key factor driving the contraction was a 1.4%
q/q decline in private consumption, while government consumption
also contracted by 1.8% q/q. Tighter restrictions due to the
Covid-19 pandemic hit household consumption, notably on sales of
restaurants and cafes. Japan's Prime Minister Yoshihide Suga has so
far declared a state of emergency in nine prefectures including
Tokyo and Osaka until 31st May, with restaurants and bars being
impacted by shorter trading hours and restrictions on sale of
alcohol.
Latest PMI survey data shows that Japan's services industries
have been negatively impacted by the stricter restrictive measures
that have been imposed as a result of the latest Covid-19 wave. The
au Jibun Bank Flash Japan PMI Services Business Activity Index fell
sharply, from 49.5 in April to 45.7 in May, indicating a
significant deterioration in service sector activity during May.
The monthly decline in the survey was one of the most marked since
August 2020.
In the Philippines, the escalating Covid-19 wave in March and
April resulted in strict lockdown measures that impacted on April
economic activity. The IHS Markit manufacturing PMI survey for the
Philippines showed a renewed contraction in output levels across
the goods-producing sector during April. A resurgence in COVID-19
case numbers led to tighter lockdown restrictions amid efforts to
control the spread of the disease. As a result, many factories
suspended their operations, and client demand declined sharply.
The IHS Markit Philippines Manufacturing PMI fell to 49.0 in
April, sharply down from 52.2 in March, to signal a marginal
contraction in operating conditions across the Filipino
manufacturing sector. The headline index had dropped below the 50.0
neutral value after three successive months of growth.
Manufacturers in the Philippines highlighted a steep decline in
output at the start of the second quarter, which was largely
attributed to enhanced community quarantine (ECQ) measures,
undertaken to control the spread of the disease. The rate of
decline was solid, and among the quickest in the survey to date. As
a result of tightening lockdown measures many clients suspended
their operations, with demand faltering for the first time since
December 2020.
In Singapore, the IHS Markit Singapore PMI fell to 51.8 in April
from 53.5 in March, signalling a softer pace of expansion in
business conditions for Singapore's private sector. The moderation
reflected renewed COVID-19 concerns, particularly as new overseas
infections rose, affecting demand from abroad. With an upsurge in
domestic Covid cases during May, the Singapore government has
imposed significant new restrictions to try to curb the escalation
in cases, which is expected to impact on consumer spending in the
near-term until restrictions can again be eased back.
APAC exports remain bright spot
Despite the significant negative impact of new Covid waves on
domestic demand in many APAC economies during April and May, the
manufacturing export sector has been performing strongly in many
East Asian economies, helping to underpin overall manufacturing
output.
Rebounding consumer spending and industrial production in key
export markets, notably the US, China, EU and UK, is helping to
drive demand for a wide range of Asia's manufacturing exports.
The strong global rebound in manufacturing output is helping to
drive demand for industrial electronics products, while improving
consumer spending is driving demand for consumer electronics. The
rebound in global electronics demand has been reflected in the
recent industrial production and exports data for many Asian
economies, including mainland China, South Korea, Vietnam and
Taiwan, albeit the trade figures are distorted by base effects from
the severe disruption to world trade in the first half of 2020 due
to the pandemic.
In the US, the Biden Administration's USD 1.9 trillion fiscal
stimulus package has already resulted in stimulus checks for 160
million households, helping to sharply boost March personal incomes
and driving a jump in private consumption spending. US consumer
sentiment is also being supported by the rapid vaccination rollout
and declining new Covid-19 cases, as well as the recovery in the US
labour market and rising wages. Retail sales in electronics and
appliance stores leapt by 10.5% month-on-month in March 2021. In
China, retail sales have also shown significant normalization, with
improving momentum in early 2021.
For mainland China, exports rose by 32% y/y in April, helped by
strong demand for electronics and medical equipment. The South
Korean Ministry of Trade, Industry and Energy announced that South
Korea's total exports rose at a very rapid pace of 41% y/y in
April. South Korea's semiconductors exports have been rising
sharply for the past ten months, increasing by 30% y/y in April. In
Taiwan, total April exports rose by 38.7% y/y, with semiconductors
exports up 34.9% y/y. Japan's exports rose by 38% y/y in April,
helped by a 34% y/y increase in exports to mainland China.
APAC near term outlook
Very low vaccination rates and escalating Covid-19 pandemic
waves are already negatively impacting on the anticipated path of
economic recovery for many APAC economies in 2021. Renewed
lockdowns and severe restrictive measures are impacting on domestic
demand in many APAC economies, even as the US, EU and UK are
rebounding from their own recent Covid-19 waves due to their rapid
progress with vaccinating their populations.
With many APAC economies dependent on imported Covid-19
vaccines, at least in the near-term, their ability to bring their
new pandemic waves under control is likely to be built on
strategies of a combination of restrictive measures as well as
trying to accelerate their vaccination programs.
However the positive overall economic outlook for the GDP growth
of the APAC region in 2021 is currently being underpinned by the
strong economic rebound in China, which is the largest economy in
the region. Furthermore, the strength of East Asian exports to key
global consumer markets, notably the US, China, EU and UK, is
helping to support buoyant manufacturing output in many
economies.
Nevertheless, the escalating Covid-19 waves evident in many
Asian economies is likely to be a significant near-term drag on
their economic recovery paths, with considerable uncertainty about
when their new Covid waves will come under control. Consequently,
the recovery paths of many Asian economies are likely to diverge
significantly during 2021 from the progress towards economic
normalization that is currently underway in the US and Western
Europe.
An important implication is that international travel in the
APAC region is likely to remain heavily shuttered for the remainder
of 2021, whereas the US, EU and UK are already discussing plans for
reopening international travel between their nations by July/August
2021.
Meanwhile the negative economic consequences of the pandemic on
APAC developing countries continue to mount. Many low-income
developing countries across Asia are suffering severe pandemic
waves, and the impact on the poor has been devastating for their
livelihoods and household incomes.
Globally, the World Bank has estimated that around 150 million
people fell back into extreme poverty in 2020 due to the pandemic.
A large proportion of this total were in India, with the World Bank
having estimated that 75 million people fell back below the poverty
line in 2020. Consequently, for many Asian developing countries,
the path to recovery from the pandemic remains protracted and
fraught with significant uncertainties.
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.