Regional Economic Recovery in 2021?
*Image Source: AFP Photo/Roslan Rahman
The year 2020 has been an unprecedented year on the global stage. With coronavirus cases reaching almost 100 million causing the deaths of over 2.14 million global inhabitants to date, our 21st century world is suffering from its worst pandemic in 100 years. As a result, we experienced the Great Lockdown in 2020, which is considered the worst economic recession since the Great Depression. In fact, several countries including Malaysia are still under lockdown in January 2021, which dampens the economic rebound projected for 2021. Similar to the Great Depression, both advanced economies and emerging market and developing economies are both now in recession.
Although the worst-case scenario projects slowing global growth among western major economies in 2021, emerging markets on the other hand are projected to lead the global economic recovery. Likewise, ASEAN and Asia Pacific markets are spearheading the drive towards economic growth. Baseline economic outlook called for growth across the entire APAC (Asia Pacific) region in 2021, with the fastest growth projected in China, Vietnam and Hong Kong.
In 2020, many Asian countries successfully contained the disease used a combinationof stringent mobility restrictions, extensive testing-based strategies, and information programs to encourage precautionary behaviour (World Bank, 2020). However, several regional economies including Malaysia, Indonesia, Japan and India are still discovering local clusters that illustrate remaining risk in 2021 within the region, as shown in Diagram 1.
Source: World Health Organisation Diagram 1: Asian Countries displaying a darker shade of blue shows a higher number of Covid-19 cases in the last 7 days.
In addition, economic growth in 2021 will to a certain extent depend on 2020’s economic performance. Countries like Vietnam and China who have contained the pandemic will continue to thrive and grow even more in 2021 as seen in Diagram 2, while other countries, especially those open economies which are dependent on western markets have a bleak economic outlook in the beginning of 2021.
Diagram 2: 2020 Economic Growth of Selected Developing Countries in East Asia
However, the entire APAC region would not fully recover until an extended rebound of the global economy expands the range of global trade to include more consumer goods such as automobiles and commodities such as crude oil and petrochemicals. Besides that, the effectiveness of the RCEP agreement implementation will go a long way in attracting a larger share of global value chains (GVCs) and deepen the specialization of each RCEP member, as shown in Diagram 3.
Source: (Global Times, 2020) Diagram 3: RCEP enhances regional supply chains.
In addition to that, economic recovery in the APAC region would not be complete until international travel and tourism flourish once again, especially in the ASEAN region which is well-known for attracting western tourists. Also, the resilience and recoveries in several industries and communities depend largely on the willingness of governments to continue to provide targeted fiscal support to households and industries hurt by the pandemic.
Finally, a key to regional economic recovery towards pre-pandemic levels is the effectiveness and availability of coronavirus vaccines. Realistically, wide deployment of vaccines would take time, delaying the restoration of confidence and optimism in the economy, as shown in Text Box 1:
*Benedict Weerasena is an Economist at Bait Al Amanah (House of Trust)