Asia Market Trends

The Asia-Pacific is the fastest growing region in the global economy, and its economic weight has increased in the last decade, reaching 31.5% of world GDP in 2020. APAC’s two economic giants, China and Japan, are the world’s second and third largest economies. The fast-growing consumer markets of China, India and ASEAN have a combined population exceeding 3 billion people, and are expected to become an increasingly important driver of global consumption over the next two decades, led by rapidly growing household incomes and a fast growing middle-class. This Asian ascendancy is resulting in a considerable refocusing of corporate strategies of Western multinationals towards the fast-growing emerging Asian economies, due to opportunities for more rapid revenue growth than in more matured developed markets. However this rapid APAC growth is also powering the ascendance of large APAC multinationals, which already comprise of 192 of the Fortune Globe 500, the world’s largest corporations. Nevertheless, much of emerging Asia remains relatively underdeveloped with low per capita incomes, and there are considerable near-term challenges in the APAC outlook.

Chinese economic growth has moderated in 2020, mostly driven by the COVID-19 pandemic, and trade frictions with the U.S. AIRP Management Solutions Ltd. expects GDP growth of 8.4% in 2021 and 5.6% in 2022, well below the average annual growth rate of 10% over the last three decades. While consumption and investment are still underpinning GDP growth, economic imbalances have increased. This reflects escalating local government debt, excessive dependence on exports and investment as growth drivers, and the rapid growth of the largely unregulated shadow banking system. Due to these significant imbalances, AIRP Management Solutions Ltd. has raised the probability of a China hard-landing scenario during the next two to three years from 18 to 23%. The government is reluctant to use further fiscal and monetary stimulus to support growth, preferring structural changes reforms to steer a transition to a more efficient economy. Catalizing consumption as a growth engine will be helped over the medium-term by rising household incomes, the fast growing middle class, and rapid urbanization of inland provinces.

Since Prime Minister Shinzo Abe was elected in late 2012, and followed by Yoshihide Suga, elected in September 2020, Japan tried to rebound from recession, by implementing the first two of the “three arrows” of Abenomics, namely monetary and fiscal stimulus. The “third arrow” of structural reforms is slow in the implementation as Suga is notably burdened with avoiding a resurgence in COVID-19 cases. AIRP Management Solutions Ltd. forecasts Japanese growth of 2.6% in 2021 and 2.4% in 2022. Monetary stimulus has so far been the key driver of recovery, with the Bank of Japan’s QE policies resulting in sharp yen depreciation, boosting export competitiveness and lifting corporate profits for exporters. However, Japan faces difficult medium-term challenges due to its contracting population, and high fiscal burden. The sales tax hike from 5 to now 10% introduced in April 2014 and raised in 2017 has dampened consumer spending. Large Japanese enterprises are still hampered by high energy cost and low productivity, and were urged to increase workers salaries in 2015, and to hire more female workers in 2019 to boost the economy further.

After sustained strong growth since 2003, Indian GDP growth has moderated considerably since 2014, due to tight monetary policy imposed to curb rising inflationary pressures that started in 2011. AIRP Management Solutions Ltd. forecasts GDP growth of 9.4% in 2021 and 9.3% in 2022. 2021 has proved a difficult year mostly due to sharp rises in COVID-19 cases. Despite some decline in inflation and cautious policy easing by the central bank, structural reforms as set out by Prime Minister Modi may attract more global investors if the pandemic can be eased, to fuel the manufacturing sector. The government approved constitutional amendment to bring a goods and services tax (GST) into effect has integrated state economies and created a single unified Indian market and gains of $15 billion a year.

Most of the largest ASEAN economies, including Malaysia, Indonesia, Thailand, Vietnam and the Philippines, have shown moderate growth in 2020, due to weak export demand driven by EU decline, and commodity import slump from mainland China. Political instability in Thailand, Malaysia, and Indonesia coupled with low COVID-19 vaccination rates hinder a return of FDI and business and leisure travel. GDP growth has been supported by domestic demand, private consumption and growth in investment. This momentum is expected to continue in 2022. ASEAN growth has been helped by continued trade liberalization initiatives among ASEAN members and through a growing network of free trade agreements with other APAC countries and beyond, including the TPP. Low oil prices will support trade balances as most ASEAN economies are net-importers of oil and have lower inflationary pressures.