A year after the Covid-19 outbreak triggered widespread social and economic upheaval, Asia is emerging out of the crisis stronger and with greater influence on the world stage, pulling the globe’s economic centre of gravity steadily to the East.
Economic activity across the region has largely returned to where it was before Covid-19 struck, thanks to its exemplary management of the pandemic. (Asia’s Covid safety and resilience are ranked as the best in the world.)1
What’s more, the bloc’s anti-crisis economic policies have been prudent and measured, in contrast to the West, where governments and central banks have been forced onto a war footing.
Take China. Although it was at the epicentre of the pandemic, policymakers there have not had to resort to excessive fiscal or monetary largesse. China has not experienced a build-up in borrowing on the scale that developed economies did. The world’s second largest economy went into the crisis with public debt at below 50 per cent of GDP, which we forecast to rise to 67.7 per cent by 2022. The picture is similar in the rest of emerging Asia, comparing favourably with G5 economies where the average debt-to-GDP ratio should exceed 150 per cent by 2022.2
In other words, Asia has managed to support growth without sowing the seeds for future financial risks.
We expect the bloc’s GDP growth to rebound strongly to 8.9 per cent in 2021, ahead of advanced economies which should grow just 4.9 per cent. That performance looks stronger still when set against the region’s shallow contraction of just 0.2 per cent last year, compared with 5.2 per cent for its developed counterparts.
Asia has managed to support growth without sowing the seeds for future financial risks.
Asia’s effective handling of the pandemic and its economic resilience owe a lot to a series of path-breaking structural reforms which the region has been advancing in the past 20 years or so, a process which we expect will pick up pace the coming decade.
Since the currency crisis in the late 1990s, Asian nations have strengthened the foundations for long-term prosperity by reforming their institutional, regulatory and capital market framework and boosting international competitiveness.
Deeper regional integration is another linchpin of post-pandemic economic revival. In November, EM Asia unveiled a new ambitious trading pact – the Regional Comprehensive Economic Partnership agreement (RCEP) – which covers trade in goods, services and investment among 15 countries, home to 30 per cent of world population.
The deal should help boost long-term growth even more by lowering trade barriers and further lifting foreign direct investment. Asia’s FDI remains resilient despite the pandemic. In 2020, China beat the US as the largest recipient of FDI in the world, attracting USD163 billion.
Southeast Asian countries, such as Vietnam, less developed than its Northern counterparts, should benefit the most from the new pact as they build a manufacturing base that will capitalise on demand from importers keen to diversify away from China.
Vietnam is one of the most dynamic Asian nations, offering high political stability, a deeply integrated global market and abundant labour with its young population of 100 million people. Its successful handling of the pandemic has added to the country’s credentials. Thanks to its geostrategic connectivity to China and the rest of Asia, Vietnam should attract a greater share of FDI in the coming years.
At a pan-regional level, Asia’s living standards are improving fast and its population is becoming more urban and affluent. By the end of the next decade, Asia will account for two thirds of the planet’s middle-class3 – a cohort whose consumption and investment habits will transform the business landscape.