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The global and regional economic recovery lost momentum in the latter half of the year, and there is some cause for concern over the outlook for 2022. A number of factors contributed to this slowdown, namely surging COVID-19 infections, supply side dislocations, and rising energy prices. Throw into the mix a slowdown in the Chinese economy—the largest export market for the majority of the region—and it’s certainly been a troubling time for many Asia Pacific economies.
However, the future isn’t all gloom and doom. In fact, we see plenty of silver lining.
We maintain our broadly constructive view of the global economy and its impact on Asia Pacific. On the whole, the global recovery remains intact, and we are cautiously upbeat that the headwinds of recent months are unlikely to linger long enough or substantially enough to hurt growth prospects next year. As inoculation rates improve, COVID-19 infection rates fall, governments and societies learn to live with COVID-19 as an endemic, and as treatment regimens for the illnesses caused by the virus continue to improve, these headwinds are likely to dissipate. Additionally, we see signs of a rebound in some of the supply chain disruptions. Policymakers also don’t seem overly shy about adding stimulus should the risks to economic growth become more severe.
So, if the headwinds to growth caused by the pandemic are reversed and as supply chains begin to recover, then the question is, how strong will the recovery be? We believe there is likely to be greater divergence in economic trajectories. The pandemic revealed weaknesses in some geographies pertaining to state capacity that will have a bearing on the strength and quality of their economic recoveries. Moreover, different geographies have varying sensitivities to the upside forces in the global economy. Some geographies have also used the crisis period to undertake longer-term reforms, which will also help to promote growth. We therefore categorize economies in the region as follows:
China’s economy will settle into a period of steady growth at around 5–5.5%. The stable numbers, however, will mask considerable qualitative changes underway in the economy.
After a difficult period, India’s economy will finally bounce back but the pace of recovery may be constrained by ongoing headwinds such as high inflation, a weak labour market, low credit growth, and a struggling hospitality sector.
The patient accumulation of reforms in Vietnam and Indonesia will yield good results in both countries, which will see a noticeable acceleration in economic growth compared to prepandemic times.
Growth will be modest in Australia, New Zealand, South Korea, Japan, Taiwan (China), Singapore as well as the Hong Kong SAR but structural transformations will be positive.
Other economies, namely Thailand and Malaysia, will continue to struggle against domestic headwinds.
Each of the points mentioned above are discussed at length in our latest report, Voice of Asia: Edition 10. We then take a closer look at Australia as an example of a mature economy that has been successful in maintaining growth throughout the multiple crises of the past two decades, and which offers valuable lessons in economic policy housekeeping for other countries to heed.
We follow this up with a deep dive into how technology is empowering digital trade in the Asia Pacific region and which countries are leading the pack in this area.
To read the full report, click here.
Cover art by: Yulli Li Xiong