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COVID policies put Asia Pacific economies on weaker recovery path -- S&P

30/11/2021 03:35 PM

KUALA LUMPUR, Nov 30  -- COVID-19 policies in Asia-Pacific have put regional economies on a weaker recovery path than the rest of the world, S&P Global Ratings said.

According to a report published today titled “Asia-Pacific: Ghost of COVID Past Hover Over 2022”, the rating agency said while the region was highly successful in curbing the spread of the virus early in the pandemic, it was slow to vaccinate and is now only gradually reopening borders and relaxing mobility.

It said the region’s vaccination coverage and economic reopening have just recently reached levels that could sustain a recovery that has faltered all year but the arrival of new COVID variants such as Omicron added to the complexity of managing the virus in Asia-Pacific and might trigger more mobility controls.

S&P said the Chinese government continuous zero-COVID strategy, whereby authorities enforced brief but stringent lockdowns in parts of the country to control outbreaks in those areas, have been effective in preventing infections but weaken consumer confidence, spending and growth.

It said policymakers are still refraining from adding much stimulus while credit growth is on the moderate side and property sector controls are still tight.

Global chief economist Paul Gruenwald said China’s central bank is unwilling to go back into high credit growth territory as it seeks to contain financial risks.

“Likewise, there has not been significant action on the fiscal front as the emphasis remains on quality rather than quantity of growth.

“We forecast 2022 growth in China at slightly below five per cent, reflecting weak domestic demand, including the effects of a property slowdown and strains among developers,” he said.

He said the full implications of China’s evolving growth model presented a key risk to the outlook for Asia-Pacific.

Gruenwald said slower growth arising from reining in credit excesses should support sustainable growth down the line but curbs on private sector entities could affect productivity gains, which would be a major growth driver for China over the next five years.

Meanwhile, S&P said pandemic escalations weighed on the third quarter economic activity in several economies across the region, leading to downward 2021 growth forecast revisions in Japan, Malaysia, Vietnam and Australia.

However, it said higher vaccination coverage and gradual reopening meant that the fourth quarter activity in Asia would be strong and that the outlook for 2022 is stabilising.

“Inflationary pressures are well-controlled in Asia-Pacific, in contrast to elsewhere. Core inflation remains low, reflecting sluggish consumer demand and is likely to rise over 2022 as economic reopening leads to improved domestic demand,” it said.

As a result, it said monetary policy across much of the region is set to remain accommodative.

For the Southeast Asia region, it said emerging from the COVID-19 delta variant, growth in the region was weak in the third quarter.

It said with mobility is now recovering as new COVID cases continued to decline and policymakers move toward greater economic opening, this led to a gradual improvement in domestic demand and widening improvement in manufacturing activity in the fourth quarter.

“Our 2021 growth forecast for the region is slightly lower at three per cent compared with 3.1 per cent earlier while outer years are unchanged.

“Malaysia was the key driver of the downward revision as the economy contracted 4.5 per cent year over year in the third quarter owing to tight lockdowns and limited fiscal stimulus compared with 2020,” it said.

It said although more than three-quarters of Malaysia’s population is now fully vaccinated and authorities are looking to open up the economy, the weak third quarter would weigh on full-year growth.

“We lower our growth forecast for the year to 2.6 per cent from 3.2 per cent earlier. The weak base in 2021 has prompted us to raise our forecast 2022 growth to 6.3 per cent from six per cent earlier,” it added.




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