China to Recover Production in 2021, US and EU Face Sluggish COVID-19 Rebound

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Regional economic growth in developing Asia will decline sharply in 2020 due to the effects of the novel coronavirus (COVID-19) pandemic, before recovering in 2021, according to the Asian Development Outlook (ADO) 2020, the Asian Development Bank’s (ADB) annual flagship economic publication.

The Asia Development Banks largest shareholders are the US (15.6% of total shares), Japan (15.6%), China (6.4%), India (6.3%), and Australia (5.8%).

The report forecasts regional growth of 2.2 percent in 2020, a downward revision of 3.3 percentage points relative to the 5.5 percent ADB had forecast in September 2019. Growth is expected to rebound to 6.2 percent in 2021, assuming that the outbreak ends, and activity normalizes. Excluding the newly industrialized economies of Hong Kong, China, South Korea, Singapore, and Taiwan, developing Asia is forecast to grow 2.4 percent this year, compared to 5.7 percent in 2019, before rebounding to 6.7 percent next year. Readers can review our comments and ADB’s predictions for the ASEAN region in our article today on ASEAN Briefing titled “Growth in Emerging Asia to Rebound in 2021“.

Concerning China, the ADB stated that the slowdown is most prominent in China, where the global health crisis first emerged. Recession in Hong Kong and China caused by separate stressors at home and abroad in 2019 will deepen in 2020 but begin to ease as fiscal responses and stronger exports bring recovery, probably beginning in 2021.

Updated scenarios suggest a much larger impact than previously envisioned, reflecting these new realities. The range of scenarios explored in this update suggest a global cost of between US$2 trillion and US$4.1 trillion, equivalent to between 2.3 percent and 4.8 percent of global GDP. The much higher estimate reflects its spread to Europe, the US, and other major economies. Developing Asia, including the People’s Republic of China, accounts for just 22 percent to 36 percent of the total. Nevertheless, regional economies will be hit hard, with an impact on the PRC of close to 5 percent of GDP.

The global outlook and impact are predicted to be as follows:

However, the Bank is far less optimistic for the chances of an immediate rebound from COVID-19 in the West, with growth stagnating or contracting in the major industrial economies of US and Europe. Other analysts, such as Fitch, take a similar view.

These economies are taking a distinct hit and post-COVID-19 will emerge with bankruptcies, little available investment capital, and large numbers of unemployed. This means that companies will need to look for cheaper alternatives to produce much-needed manufacturing products in order to stimulate Western consumer demand. That production requirement will be met by China and the other emerging economies in Asia. To keep pace, US and EU manufacturers need to be re-evaluating China and ASEAN manufacturing investments into the region now.

For ASEAN figures please click here.  

For the impact on the immediate Belt and Road economies please see “After the Coronavirus: The Asian Belt and Road Initiative Economic Recovery, 2020-2021.”.

“These figures, combined with the pessimistic view that the ADB have concerning growth in Europe and the US, strongly suggest that Asian manufacturing will pick up during the second half of this year, returning to previous growth patterns from 2021 onwards,” says Chris Devonshire-Ellis, Dezan Shira & Associates Chairman. “Slow growth and low investment capital in the West are expected to reduce an immediate return to normality there, suggesting that lower costs and operational overheads in Asia could replace Western manufacturing and reverse any trend of re-shoring. Manufacturers in Europe and the US should be looking at Asia to remain ahead of the virus and overcome a manufacturing and production shortfall and sluggish COVID-19 recovery in the West.”

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