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Outlook 2021

Where Asia’s recovery will come from

Asia’s recovery is underway, and we can expect to see three main themes drive the region’s post-pandemic economy.

The first is the strong momentum in China, which is expected to record strong growth in 2021. This should spill over into the rest of the region, in terms of improved exports and activity.

Secondly, the strong recovery in the tech cycle, which was evident in the second half of 2020, is likely to continue through 2021. Expect new business models to emerge as working from home becomes a permanent feature of business, aided by the continued rollout of 5G internet technology. Strong demand for technology related products will continue to rise.

Finally, of course, the pace of the COVID-19 vaccine rollout will be quite critical in determining how fast the recovery will occur. If the vaccine is distributed quicker than anticipated, that could potentially unleash very strong pent-up demand in the region.

The opportunities for 2021 are immense, partly as a result of the Regional Comprehensive Economic Partnership, which opens up tremendous potential for shifts in supply chains. Economies like Vietnam, Thailand, Malaysia and Indonesia now have the potential to attract more FDI inflows from countries such as China, Korea and Taiwan.

Economic reform in countries like India and Indonesia will also be a positive influence, making it much easier to do business and attracting increased foreign investment.

A key challenge for policymakers in 2021 will be – aside from ensuring the distribution of the COVID-19 vaccine runs as smoothly as possible – correctly managing monetary and fiscal stimulus, how to start to wean the economy off the unprecedented support provided in 2020.

We all know government debt levels have increased tremendously and there is a need at some point to start to repair fiscal balance sheets. Ensuring this is done in a way that does not disrupt the real economy will be important.

Khoon Goh is Head of Asia Research at ANZ

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