APAC economies to bounce back in 3Q

China’s continued recovery will propel Malaysia, Taiwan, Vietnam and South Korea to some of the faster growth rates in 3Q


ECONOMIC recovery is beginning for most of the Asia-Pacific (APAC) region and growth rates will accelerate in 2021, Moody’s Analytics chief APAC economist Steve Cochrane said.

“All countries within the APAC region are expected to enjoy a positive economic bounce in the third quarter (3Q) except for the Philippines, which has suffered the longest and strictest lockdown in the region and whose count of Covid-19 cases has accelerated this month.

“Similarly, Indonesia’s case count continues to rise due in part to more lax government restrictions that will allow some modest growth in the current quarter if no further economic shutdowns are required,” he said in a Moody’s Analytics report titled “If All the Pieces Fit: APAC Recovery Begins”.

Australia, Japan, New Zealand, South Korea and Vietnam were among the first to ease restrictions owing to their early interventions that resulted in low case counts and low death rates. Vietnam and Taiwan currently have the least amount of restrictions in the region.

Malaysia, Singapore and Thailand have more recently emerged from various forms of lockdowns, with restrictions being eased in stages and each will see a bounce back in 3Q.

The report said China’s continued recovery will propel Malaysia, Taiwan, Vietnam and South Korea to some of the faster growth rates in 3Q. This is due to their links to China through tech-producing industries, autos and auto parts, various intermediate products, and in the case of Malaysia, crude oil and palm oil as well.

However, travel and tourism will be the slowest component of the APAC economy to recover as restrictions on the industry could last well into 2021.

Over the longer term, higher costs of travel and changing patterns of business travel will mute growth for the sector.

This is significant for the small open economies of Hong Kong and Singapore, and tourism-dependent economies such as Malaysia, New Zealand, the Philippines, Thailand and Vietnam.

According to the World Travel and Tourism Council, travel and tourism accounts for nearly 10% of GDP in Thailand, while the Philippines follows closely at 9% and Vietnam, Malaysia and Singapore at around 5% each.

The report also said the US, China and Malaysia have the highest labour market exposure with over 14%, of employment in these industries, followed by Singapore and South Korea (over 13%), Japan and Australia (over 12%), and New Zealand, Taiwan and Thailand (over 11%).

For comparison, the US, also at over 14%, ranks the highest along with China and Malaysia.

Regulators in APAC countries, including Malaysia, have instructed banks to provide six to 12 months’ -debt payment holidays to small and medium enterprises and consumer mortgages.

Malaysia, Thailand, Singapore, Australia and Japan have so far provided the strongest fiscal boost to their economies, Cochrane said.

However, more fiscal support may be needed in Malaysia, Thailand and Singapore, as they are among the worst-hit economies in the region with potentially long-lasting impacts due to their dependence on tourism and trade, he added.

The outlook for APAC is the strongest compared to other global regions, and thus the region will continue to recover, although maintaining a strong rebound through the end of this year and next will be difficult.

“It will accelerate as global demand recovers later this year, Europe and the US should see their economies improve.

“But like the rest of the world, a return to former levels of vitality will depend upon when a vaccine is readily available, and by how quickly the APAC economies ease their lockdown restrictions and open up travel and tourism,” Cochrane said.

Risks remain skewed to the downside and are most closely related to accelerated or second waves of Covid-19 in the US or elsewhere in the world.

Within the APAC region, critical risk lies in the willingness and capability of policymakers to continue to provide fiscal support to households and industries that remain impacted by the slow pace of global recovery.