The Asia Pacific Region is forecast to grow by 4.3 per cent in 2022, albeit, lower than the 2021 growth forecast of 5.6% due to lower base effects from 2020, according to Moody’s Analytics.
This positive growth forecast is buoyed by the region’s accelerated production from its goods-producing industries in recent months, triggering increased export volume and price effects.
Though the region’s recovery lagged as a result of the spike in COVID-19 cases during the year, its growth is likely to accelerate in 2022, as mobility restrictions such social distancing rules ease and vaccination rates continue to rise.
In a statement released on Tuesday, November 23, 2022, Moody’s stated that at the close of 2022, “all major economies in the region, including Southeast Asia, will have finally achieved full recovery as measured by real GDP that exceeds its level of 2019’s fourth quarter.”
In early 2021, when the Asia Pacific region was hit hard by a more transmissible COVID-19 Delta Variant, its output declined, but modest, compared to the impact of lockdowns imposed last year, the statement read.
According to Moody’s, it is expected that “domestic demand will add to the export-driven growth set to power the regional economy into the first half of 2022.” With data indicating the growing ease in mobility, this shows potential for improving retail sales and other consumer spending.
China’s growth to slow down in the coming year
The largest economies in the region, including China, Japan, South Korea, Malaysia and Singapore along with Australia and New Zealand have reached “herd resilience” with over 80 percent of the population 12 years old and over, fully vaccinated.
“More importantly, employees are increasingly returning to their places of work, bringing life back to centres of office employment and accelerating manufacturing that is desperately needed to unclog supply chains.”
Moody’s Analytics
Despite the positive growth outlook of the region, on the whole, China’s slowdown will be the next greatest risk after COVID-19. Based on Moody’s Analytics Supply-Chain Stress Index, China lies “well above anything seen” over the past decade, and is still rising, according to the Statement.
Another risk likely to dampen the pace of the economic recovery of the region is China’s zero-Covid-19 policy. “The continued restrictions on international travel in and out of China will limit the impact of opening international travel hours around the region.”
Countries such as Vietnam, Thailand, the Philippines and Singapore were highly dependent upon arrivals from China in the pre-pandemic period. “Without their return, demand for travel and hospitality services will be slow to recovery,” Moody’s said.
The region’s inflation is relatively mild with only a few of the economies with rapidly growing consumer prices over the past 6 months. But, this is likely to change in the coming months. Central banks in New Zealand, Singapore and South Korea have already responded with tightened monetary policy.
“The US Federal Reserve’s current policy outlook allows central banks in the region to sit tight and allow fiscal policy and easing mobility restrictions to drive economic recovery.” However, there are risks that the Fed could accelerate its policy-rate normalisation sooner than late 2022.
According to Moody’s, the Asia Pacific countries’ central bankers would be pressured to move sooner as well despite still-uncertain economic recoveries.
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