Asia: Covid scars and political rivalry

Key points:

• Record numbers of new Covid-19 cases slow the economic recovery in Asia, but only temporarily and mainly in countries with a low percentage of the population that is fully vaccinated.China and Vietnam show highest growth in Asia since the outbreak of Covid-19. India’s economy, despite high growth rates, is likely to experience a setback. Economic activity in Thailand and the Philippines will not reach pre-pandemic levels before 2022.

• Rising exports are contributing to the recovery in most countries, with Vietnam and China taking advantage of a global boom in demand for computers and electronics.

• Vietnam will also benefit from the ongoing US-China trade war, with a strong recovery in FDI inflows. The trade war has not resulted in a significant decoupling of the US and Chinese economies.

• The direct impact of supply chain distortions will disappear, but the pandemic will leave scars with long-term implications for growth and international trade. India and the Philippines will suffer economic scarring the most, while Vietnam and Taiwan probably feel it the least. Differences in the containment of the Covid-19 outbreak and the level of fiscal support are the main explanatory factors.

• Companies will rethink and redesign their supply chains because of the disruptions that have led to shortages of essential commodities around the world and increased costs. For governments this is, together with the trade war, a reason to place more emphasis on self-reliance in crucial sectors such as high-tech and pharmaceuticals.

• Free trade agreements offer some counterbalance to these developments. Like trade policy in general, however, they are increasingly tools of geopolitical aspirations and less inspired by the pursuit of economic cooperation.

Bert Burger, senior economist
bert.burger@atradius.com
+31 20 553 2872