The Philippines will experience a huge swing end in the economy from a contraction of 9.5 percent by year’s before recovering strongly with a 9.6 percent gross domestic product (GDP) expansion the next year based on projections released by credit watchdog Standard and Poors Global Ratings (S&P) yesterday.
The economic turnaround will also be the third strongest in the Asian region next year after Vietnam’s 11 percent growth forecast and India’s 10 percent.
S&P expects Malaysia to grow 8.4 percent in 2021; China, 6.9 percent; Indonesia and Singapore, 6.3 percent; Thailand, 6.2 percent; Hong Kong, 5.3 percent and New Zealand, 5.2 percent.
China will continue to lead Asia’s uneven recovery from the economic disruption. S&P said it has revised up its 2020 GDP forecasts for China as well as for Korea, Taiwan, and Vietnam amid stronger trade and consumer spending.
“We now expect normalization to take longer in India, Japan, Australia and most of Southeast Asia,” the report titled “Asia-Pacific’s Recovery: The Hard Work Begins” said.
Not over yet
“The pandemic is not over but the worst of its economic impact has passed,” S&P Asia-Pacific chief economist Shaun Roache said.
“Governments are adopting more targeted strategies for flattening COVID curves, with less recourse to nationwide lockdowns. Households are spending again on services as well as goods”, Roache projected.
COVID-19 is proving hard to beat but fatality rates are falling and prospects have brightened for a widely available vaccine by mid-2021.
“In the meantime, people are moving and spending more, testament to a world becoming accustomed to COVID-19. Trade, for example, has bottomed”, according to the rating firm.
As a whole, S&P expects Asia-Pacific economies to shrink by two percent in 2020 and rebound by 6.9 percent next year. This will still leave the region almost five percent below the pre-COVID trend by end 2021.
“The hard work now begins,” Roache noted. “As relief measures taper, we will find out how much economic damage has been wrought,” he said.
Hard decisions needed
Fading temporary tax cuts, wage subsidies, loan moratoriums and other measures will force banks, businesses and households to make hard decisions.
Businesses only getting by due to grace periods on servicing debt may be forced to close up shop. Banks will have to assess whether to restructure or foreclose on questionable loans. “The true deterioration across balance sheets will become apparent even as economies reopen,” it stated.
The employment situation will be a key determinant of the strength of recovery, S&P said, adding that employment is expected to return to pre-COVID trends only by 2022, at the earliest, in most cases.
“This will put a lid on wages, drag on consumer spending, and keep inflation low across the region. With fiscal policies and financial conditions likely to tighten, central banks have no option but to keep policies exceptionally easy,” S&P forecast.