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Asian Development Outlook Update, December 2020

Paths diverge as Developing Asia moves toward recovery

Economic activity in Developing Asia is forecast to contract by 0.4% this year, and then expand by up to 6.8% in 2021 as the region moves toward recovery from the effects of the coronavirus disease (COVID-19) pandemic.

Economic forecasts have since been updated 

Key Messages

  • According to the latest ADB economic report (December 2020) Developing Asia is now forecast to contract by 0.4% in 2020, less than the 0.7% contraction envisaged in the September ADO Update.  While growth in 2021 is forecast to rebound to 6.8%.
  • But prospects are diverging within the region:
    • East Asia’s growth forecast for 2020 is upgraded from 1.3% to 1.6%, reflecting faster-than-expected recovery in the PRC and Taipei,China
    • South Asia will contract by 6.1% this year, upgraded from a 6.8% contraction in the ADO Update. India is recovering more rapidly than expected
    • Contraction in Southeast Asia has been revised down from 3.8% to 4.4%. Central Asia is still projected to contract by 2.1% this year, and the Pacific economies by 6.1% as global tourism continues to languish. 
  • Depressed demand and low oil prices will keep inflation in check, at 2.8% in 2020 and 1.9% in 2021

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Developing Asia Outlook

After a 0.4% contraction this year, growth will resume in 2021

Economic activity in developing Asia is forecast to contract by 0.4% this year, less than the 0.7% contraction envisaged in the Asian Development Outlook 2020 Update in September. Growth will rebound to 6.8% in 2021, but this will still leave the level of GDP next year substantially below pre-COVID-19 expectations. 

Real GDP growth in developing Asia

Real GDP levels in developing Asia

Source: Asian Development Outlook database.

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Export recovery is being driven by strong demand for health supplies and electronics

Pandemic-induced lockdowns and restrictions have been eased at varying levels in the region, with merchandise exports rebounding quickly from substantial declines in the second quarter.

The region’s recovery has been boosted by strong exports of health and medical equipment and supplies, and exports of electronics and home goods—demand for which has increased during the pandemic.

Real Exports

Notes: G3 refers to the weighted average of US, Japan, and Euro area. Developing Asia refers to the weighted average of PRC; Hong Kong, China; India; Indonesia; Republic of Korea; Malaysia; Pakistan; Philippines; Singapore; Taipei,China; Thailand; and Viet Nam.

Source: CPB Netherlands Bureau for Economic Policy Analysis. Available: https://www.cpb.nl/en/worldtrademonitor (accessed 16 November 2020).

Considerable challenges remain

With the exception of East Asia most of developing Asia’s subregions are forecast to contract this year

East Asia is the exception, with an upgraded growth forecast of 1.6% for 2020 on the back of faster than expected recoveries in the PRC and Taipei,China. East Asia’s growth outlook for 2021 is maintained at 7.0%.

South Asia is expected to contract significantly this year (6.1%), but with the recovery in India accelerating growth is forecast to rebound to 7.2% in 2021.

The forecast for Southeast Asia is revised down from a 3.8% contraction in the ADO September Update to 4.4% in 2020 and from 5.5% growth to 5.2% in 2021, as several economies including Indonesia, Malaysia, and the Philippines are still hampered by COVID-19.

The outlook for the Pacific is unchanged with a forecast contraction of 6.1% in 2020 and growth of 1.3% in 2021.

Central Asia’s forecast for 2020 remains a contraction of 2.1%, with the outlook for 2021 slightly downgraded to 3.8% from the 3.9% predicted in the ADO September Update. 

Source: Asian Development Outlook database.

No end is yet in sight for the global tourism collapse

Tourism exports remain abysmal as many travel restrictions to contain the pandemic remain in place. Available data show declines in tourist arrivals ranging from 88% to 100%. Prospects for quick recovery in global tourism are muted. In a survey conducted by the International Air Transport Association in August, over half of respondents said that even after travel restrictions were lifted, they would wait from 6 months to a year or longer before traveling.

Decline in tourist arrivals, selected developing Asian economies

Sources: CEIC Data Company; IMF Tourism Tracker; and official sources (accessed 27 November 2020).

Inflation remains muted due to low oil prices and depressed demand

Inflation Rate Forecasts - Developing Asia

Regional inflation is expected to marginally ease to 2.8% in 2020, from the 2.9% projected in September, due to depressed demand and low oil prices. Inflation for 2021 is forecast at 1.9%, down from 2.3% forecast in September. Oil price forecasts are retained at $42.50 per barrel in 2020 before increasing to $50.00 per barrel in 2021.

Risks are becoming more balanced

The main risk is of a prolonged pandemic (extended first wave, or recurrent waves) which can derail the recovery and undermine stability in some economies. Recent good news on the vaccine front are tempering this risk. Safe, effective, and timely vaccine delivery in developing economies is necessary if they are to share equitably in the benefits of the reopening of economies and the recovery of growth in the region.

Publication and Links

Asian Development Outlook (ADO) 2020 Supplement publication cover

Asian Development Outlook (ADO) 2020 Supplement: Paths Diverge in Recovery from the Pandemic

The Asian Development Outlook analyzes economic and development issues in developing member economies in Asia. This includes forecasting growth rates and inflation of member economies throughout the region, including the People’s Republic of China and India.