KARACHI: Global output will contract by 3.6 per cent in 2020, but Asian countries will outperform other markets in 2021, according to Fitch Solutions, in its recent Asia Macroeconomic Quarterly Update released on Thursday.
In particular, China, India, Malaysia and Indonesia will see strong recovery in 2021, with real Gross Domestic Product (GDP) growth rates of above 4 per cent in 2021.
Emerging markets currencies also expect greater stability. “Emerging markets took a big hit in February and March as risks around Covid-19 started to escalate. However, significant dollar liquidity provided by the Fed helped to stem losses in recent months and has seen greater stabilisation and even gains in several emerging markets currencies.” the update said.
The update was presented in a webinar conducted by Anwita Basu, Head of Asia Country Risk at Fitch Solutions (which does not comment on Fitch Ratings).
According to Fitch Solutions, there are four themes regarding post-Covid 19 Asia.
First, trade protectionism in Asia will be short-lived. Already, close to 60 per cent of trade in Asia is done within the region, and this is expected to rise further in the medium term. As a region, exports account for more than one-quarter of GDP.
Second, investors will expand in manufacturing-heavy countries other than China. Since 2018, a ‘China Plus One’ manufacturing hub strategy had gained popularity, as companies sought to avoid US tariffs on China. This trend is expected to accelerate.
Third, countries will try and diversify their economies, particularly those that relied heavily on tourism.
Fourth, social stability in Asia is up in the air, as rising unemployment and income inequality will weigh on countries in the medium term. Government support is expected to not be of much help, as most people are employed in the informal sector in Asia.
The report predicted that China’s real GDP to come in at 1.1 per cent in 2020. The country’s exports are expected to contract further during the global recession.
Similarly, export-oriented countries like Taiwan and South Korea will also be affected, with real GDP growth rates of 0.5 per cent and -0.3 per cent in 2020 respectively. Taiwan’s internal demand may weaken, amid a fall in wages, while South Korea’s government is expected to provide a strong stimulus to boost local demand.
India’s real GDP is expected to contract by 4.5 per cent in 2020. Consumer spending is expected to fall again due to a lack of income.
“A weak overall demand outlook will likely see businesses delay investment plans to grow their operational capacity,” said the report.
However, Australia (-1.9 per cent real GDP growth) and New Zealand (-1.4 per cent real GDP growth) are expected to do slightly better moving forward, due to combating the virus early on, and measures boosting business confidence.
