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This supplementary report to the Asian Development Bank's December 2020 outlook goes into detail on how the different sub-regions are recovering financially and economically from the COVID-19 pandemic. Find the full reading here: https://www.adb.org/sites/default/files/publication/658721/ado-supplement-december-2020.pdf

Paths Diverge in Recovery from Pandemic

HIGHLIGHTS

Developing Asia is now forecast to contract by 0.4% in 2020, 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 prospects diverge within the region.
Projected growth in East Asia in 2020 is upgraded from 1.3% in the Update to 1.6% as the People’s Republic of China and Taipei,China recover more quickly than expected. Growth in 2021 is still forecast at 7.0%.
The earlier South Asia forecast for 6.8% contraction is upgraded to 6.1% in line with an improved projection for India, as recovery accelerates, from 9.0% contraction to 8.0%. Growth will return in 2021, at 7.2% in South Asia and 8.0% in India.
Recovery in Southeast Asia continues to lag as virus containment efforts in the larger economies hamper economic activity. Subregional forecasts are downgraded for 2020 from 3.8% contraction to 4.4%, and for 2021 from 5.5% growth to 5.2%.
Growth forecasts for Central Asia and the Pacific are unchanged from September. 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 regional inflation in check at 2.8% in 2020 and 1.9% in 2021.

Recent developments Since the Asian Development Outlook 2020 Update, Coronavirus Disease 2019 (COVID-19) has continued to spread. The United States is currently suffering its third wave with an average of more than 160,000 new cases daily at the end of November. Europe is on its second wave, with new cases in the euro area exceeding 75,000 daily. Developing Asia has about 70,000 new cases daily, more than two-thirds of them in South Asia and almost all of the rest evenly divided between Central and Southeast Asia. East Asia has the virus largely under control, with just over 500 new cases daily, while the Pacific has so far avoided large outbreaks. Despite the persistent spread of COVID-19, most economies have continued to relax containment measures, having deemed strict lockdowns to be economically unsustainable. Variation in the intensity of containment reflects the state of outbreaks in different economies. Containment remains relatively stringent in Central, South, and Southeast Asia, where outbreaks have continued in some economies and reemerged in others. Containment is less stringent in East Asia and the Pacific where outbreaks are under control or absent. Consequently, mobility and economic activity have improved in these subregions in recent months. Subregional variations in mobility are consistent with those of containment. Domestic mobility is slightly below levels that prevailed before COVID-19 in East Asia and the Pacific. In subregions still dealing with serious outbreaks, domestic mobility remains below normal—by about 10% in South Asia and 20% in Central and Southeast Asia.

Regional merchandise exports have rebounded quickly, but recovery in tourism is taking much longer. After contracting in May by 16% year on year (as assumed unless otherwise noted), Asia’s exports have recovered in recent months to levels similar to last year. Many categories of exports have fallen in response to weak external demand as the major advanced economies contract substantially this year, albeit by less than forecast in the September Update (box). These shortfalls have been offset by strong exports of health and medical equipment and supplies, and of electronics and household goods, demand for which has increased during the pandemic. 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.

Growth outlook and risks As the pandemic lingers, developing Asia is projected to contract by 0.4% in 2020, less than the 0.7% contraction envisaged in September (table). Contraction is still expected in all subregions except East Asia. Regional growth will rebound to 6.8% in 2021, but output will remain below what was envisioned before the pandemic. Excluding the newly industrialized economies of Hong Kong, China; the Republic of Korea; Singapore; and Taipei,China, the regional gross domestic product (GDP) forecast is revised up from –0.5% to –0.3% in 2020 and maintained at 7.2% growth in 2021. A prolonged pandemic is still the main risk to the outlook, as it can derail recovery and undermine stability in some economies. Recent progress in developing vaccines tempers this risk, but vaccines must be not only safe and effective but also delivered widely in a timely way for developing economies to share equitably in the benefits. Another risk is worsening geopolitical tensions, most notably intensified friction between the US and the People’s Republic of China (PRC) over trade and technology. Recent US election results may bring more predictability and multilateral approaches to resolving tensions between the world’s two largest national economies, but full reconciliation will be a challenge.

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Inflation outlook The 2020 inflation forecast for developing Asia is revised down slightly from 2.9% to 2.8% in this Supplement, reflecting continued depressed demand and low oil prices. In 2021, inflation is expected to ease further to 1.9%, lower than envisaged in the Update (table). Brent crude oil prices in the year to 25 November averaged $41.55/barrel, 35% below the same period last year. Several factors have held down oil prices: resurgent COVID-19 cases in the major advanced economies, decline in travel demand, a scheduled OPEC production increase agreed for next January, and oil production recovery in Libya. Countering these factors are upward pressure from a continuing rise in oil imports of the PRC, a seasonal increase in demand for heating oil, and recent positive news about COVID-19 vaccines. However, high oil inventories and excess production capacity will limit upward pressure on oil prices. Price forecasts for Brent crude are thus retained at $42.50/barrel in 2020 and $50.00 in 2021.