Asia-Pacific forecasts stabilize

Growth can be better or worse than we think and, for the first time in 2020, we see the probability of both as being roughly the same

SINGAPORE (S&P Global Ratings) — Economic trajectories for the Asia-Pacific are stabilizing, as S&P Global Ratings expects Asia-Pacific GDP to shrink about two percent in 2020 and grow by 6.8 percent in 2021, close to its previous forecasts at the end of the third quarter.

Uncertainty remains unusually high, but little in the past three months has led to large revisions to its views.

This is according to a report published Monday by S&P Global Ratings titled, “Asia- Pacific Forecasts Stabilize, Risks Now Balanced.”

“In uncertain times, we need to pay much attention to the risks around forecasts,” said Asia- Pacific chief economist Shaun Roache.

“Growth can be better or worse than we think and, for the first time in 2020, we see the probability of both as being roughly the same,” he added.

Most important, the probability has risen of a safe and effective vaccine rolling out earlier than its baseline assumption of the second half of 2021.

All the logistical challenges remain. Still, an early rollout would mean both a faster normalization with less permanent damage to labor markets and balance sheets than we currently assume in our forecasts.

Positive developments

There are other positive developments. Jobs have stabilized and some labor markets have shown unexpected vigor. A new United States administration lowers the risk of an acute escalation in economic conflict with China, while the Regional Comprehensive Economic

Partnership inks the first broad Asia-Pacific free-trade agreement in history.

“These developments either lower the probability of very bad outcomes or increase the probability of faster growth in the next 12 months and beyond. After a difficult year, this is new,” Roache said.

An early vaccine rollout would bring forward the recovery next year. Even if a recovery came one quarter earlier, it would have a large effect on growth for the full year. It would speed up domestic normalization by reopening affected sectors and reducing voluntary social distancing.

Tourism and travel would return faster, albeit with a lag.

Still, trials data are preliminary and logistical challenges remain, so we maintain our assumption of wide distribution in the second half of 2021, for now.

Fewer jobs were lost than expected, helped by timely policy interventions, including wage subsidies. Jobs are also rebounding faster than expected.