Most Asian economies contracted sharply in 2020. GDP growth in the region, excluding Japan, was just 0.1 per cent, and only because of mainland China’s 2.3 per cent expansion. Now we are seeing divergence within the area, however: while we have increased our growth forecasts for some countries, we have cut others.

There are bright spots such as increased exports, but extended lockdowns and slow vaccination rates are holding back some economies.

From last year’s low base we expect a punchy 7.8 per cent rebound in the region’s GDP and we expect the strong recovery to continue through 2022, with 5.3 per cent growth exceeding 2019’s pre-virus rate.

Our Indian GDP forecast is raised to 11.2 per cent for this year, with Japan, South Korea and Taiwan increased too. But within the ASEAN trading bloc, we have nudged down our 2021 forecasts for Indonesia, the Philippines, Thailand, Malaysia and Vietnam.

The Philippines, still coping with COVID-19, has had a weaker-than-expected start to this year: its vaccine roll-out may lag other countries’ and inflation may pose a drag to local demand.

However, because of our raised forecasts and some countries’ growth beating expectations at the end of 2020, we now think that most Asian economies should reach their pre-pandemic levels by the end of this year.

In India, for instance, we have brought this forecast from the first quarter of 2022 to the final three months of 2021. And Japan’s expected ‘break-even’ point is now the first quarter of 2022, instead of ‘some time’ in 2023 or beyond. But having downgraded Indonesia’s 2020 growth to 4.3 per cent we now expect recovery to pre-pandemic levels to be at the year-end, not mid-2021.

We expect Asia’s post-pandemic rebound to extend well into next year, with 2022 growth exceeding 2019 rates almost everywhere except mainland China, Taiwan and Vietnam, whose shortfalls were less severe.

Despite recent worries about rising price pressures, the medium term outlook for inflation in much of Asia remains relatively benign.

Indeed, we’ve cut our 2021 CPI forecast in Hong Kong, India, Indonesia, Japan, Singapore, Thailand and Vietnam. Small upward revisions in Korea and Malaysia partly reflect higher energy prices.

However, the Philippines has seen greater price pressures – partly because of supply disruptions, notably in food – but while inflation is likely to be above the central bank’s target range this year of 2 per cent to 4 per cent, it should fall back next year and we still expect interest rates to stay on hold this year and not rise until 2022.

Meanwhile the above-expectations trade performance has improved the trajectory for current-account balances in most Asian economies. We have thus raised our forecasts for Hong Kong, Indonesia, Japan, Korea, Malaysia, the Philippines and Thailand but see India dipping back into deficit because of strengthening local demand and a wider-than-assumed budget deficit in 2021.

One consequence of our new Asian GDP growth forecasts is that our global growth prediction rises 0.2 percentage points to 4.8 per cent for 2021 and by 0.1 points to 3.6 per cent in 2022.

First published 18 January 2021.

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