articles Ratings /ratings/en/research/articles/211130-economic-research-asia-pacific-ghosts-of-covid-past-hover-over-2022-12204123 content esgSubNav
In This List

Economic Research: Asia-Pacific: Ghosts Of COVID Past Hover Over 2022


CreditWeek: What Does The Delay In Fed Rate Cuts Mean For The Economy And Credit?


Global Economic Update: Policy And Exchange Rate Forecasts Revised On New Fed Funds Rate Expectations


Economic Research: Persistent Above-Target Inflation Will Delay The Start Of Rate Cuts In The U.S.


Economic Research: Japan's Long Wait For Sustained Inflation Is Likely Ending

Economic Research: Asia-Pacific: Ghosts Of COVID Past Hover Over 2022

COVID policies in Asia-Pacific have put regional economies on a weaker recovery path than the rest of the world. While the region was highly successful in curbing the spread of the virus early in the pandemic, it was slow to vaccinate, and is now only gradually reopening borders and relaxing mobility. S&P Global Ratings believes the region's vaccination coverage and economic reopening have just recently reached levels that can sustain a recovery that has faltered all year.

China continues with its zero-COVID strategy. Authorities have been enforcing brief but stringent lockdowns in parts of the country to control outbreaks in those areas. These lockdowns are effective in preventing infections but weaken consumer confidence, spending, and growth.

Consistent with the above, economic data in the third quarter are coming in on the weak side. We provide more details below, but the highlights of the data released so far are the following:

  • China's year-on-year growth fell below 5%, reflecting weak domestic demand, including the effects of a property slowdown and strains among developers.
  • Japan's quarterly growth was negative, due to lockdowns in response to an escalation of COVID-19 cases and weakness in the auto sector as a result of chip shortages.
  • Southeast Asia's third quarter was generally weak as expected, in keeping with severe COVID outbreaks. Malaysia's GDP fell 4.5% year on year although the Philippines surprised on the upside.

While exports across Asia-Pacific remain the bright spot, they are plateauing at high levels. The region continues to benefit from its position as "factory of the world." In addition to that, the pandemic-induced shift in global demand toward durable goods, from services, has supercharged demand for the region's exports. Global supply bottlenecks are delaying some production but demand for manufactured goods remains strong.

Chart 1


Fourth-quarter data are also showing improvement in Southeast Asia manufacturing following pandemic-driven slowdowns in response to the outbreak of the delta variant there earlier this year. The region is a significant part of the Asian electronics supply chain.

Diverging Producer And Consumer Prices Strain Margins

Inflationary pressures are well-controlled in Asia-Pacific, in contrast to elsewhere. Core inflation remains low, reflecting sluggish consumer demand. The increase in commodity prices including energy is driving up producer prices and energy price inflation, which have been offset to some extent by easing food price inflation. Importantly, the gap between producer and consumer inflation has widened considerably because firms are unable to pass rising raw material costs to consumers, pressuring their margins.

Chart 2


Some central banks in developed Asia are starting to normalize policy as their economies recover and inflation strains rise. The Bank of Korea and the Reserve Bank of New Zealand have raised policy rates already this year, and both are likely to hike interest rates by another 25 basis points at their upcoming meetings. Core inflation is now running high, adding to financial stability strains.

In addition, the Reserve Bank of Australia (RBA) has begun tightening conditions. It discontinued its yield curve control (on the April 2024 government bond) since inflation is moving toward its target earlier than expected. The RBA has also begun to taper asset purchases, but continues to expand its balance sheet at the rate of A$4 billion per week. There are still risks of changing monetary policy course since inflationary strains could ramp up significantly. The labor market weakened in October due to lockdowns, but vacancies are high and jobs demand is robust, indicating a brisk recovery is likely.

In contrast, central banks in emerging market in Asia-Pacific are still on an accommodative footing since inflation remains low and capital flow conditions are favorable. Bank Indonesia left the seven-day reverse repo rate unchanged at 3.50% and encouraged commercial banks to pass on earlier rate cuts to consumers.

China: Growth to fall below 5% as property strains persist

Real GDP in the third quarter was not a surprise--growth moderated to 4.9% year on year in the third quarter from 7.9% year on year in the second quarter. Targeted lockdowns in July and September took a toll on retail sales. Industrial activity weakened due to power cuts across various factories. Additionally, the property sector--one of the major growth drivers--is steadily decelerating.

Recent activity data had some interesting information showing divergence between consumer spending (better) and manufacturing (weaker). Retail sales growth picked up, partly because lockdown measures eased, while industrial production growth slowed. There are now signs that the power crunch has eased and will not weigh further on manufacturing.

Policymakers are still refraining from adding much stimulus. Credit growth is on the moderate side. The central bank is unwilling to go back into high credit growth territory as it seeks to contain financial risks. Likewise, there hasn't been significant action on the fiscal front.

Growth for the year is still on track to meet our 8% forecast, although activity was frontloaded in the first half of the year. Investors that are thinking about 2022 will be looking at the implications of Beijing's common prosperity policy (that economic gains are shared more equitably among the population) and its push for financial discipline. In particular, investors want to understand what these sweeping policy objectives will mean for China's private sector and other key drivers of the country's growth.

Chart 3


These policy choices will be key variables determining the extent of the country's real estate sector slowdown. This restraint is likely to weigh on activity over the course of 2022. There is broadening squeeze on the real estate sector (see "China's Contagion Risks Rise," Nov. 10, 2021, and "China's Falling Land Sales Will Press Change on LGFVs," Nov. 11, 2021) with land sales and construction slowing.

The slowdown of this critical sector, combined with the country's zero-COVID stance, mean that consumer sentiment is likely to remain cautious. Small and midsize enterprises are also facing margin pressures due to greater divergence in producer and consumer prices (see "Supply Chain Strains and Rising Costs Will Pressure Profitability in 2022," Nov. 18, 2021.

These factors are weighing on the outlook for China and, as a result, we lower our China growth forecast to 4.9% in 2022, from 5.1% earlier, and we lower our 2023 growth forecast to 4.9% from 5.0% earlier. Our growth forecast for this year is unchanged at 8.0%.

India: Activity rebounds from pandemic lows

India is learning to live with the virus. Following the peak in COVID-19 cases around mid-year, the stringency index has declined, mobility has recovered, and consumer and business confidence has improved. Rising inflation is a pressure point, unlike elsewhere in emerging Asia. External demand continues to support growth. Recent high-frequency indicators such as the October services purchasing managers' index reading of 58.4 suggest a strong recovery is underway.

We leave our growth forecast unchanged at 9.5% for the fiscal year ending March 2022 and 7.8% for the year ending March 2023. The ongoing broadening out of the recovery suggests that permanent costs are likely to be lower, and as a result we revise higher our growth forecast for the fiscal year ending March 2024 to 6.0% from 5.7% earlier.

Southeast Asia: Emerging from delta

Growth in Southeast Asia was weak in the third quarter. This was in line with our expectations as lockdowns weighed on economic activity. Mobility is now recovering as new COVID cases continue to decline and as policymakers move toward greater economic opening. This is leading to a gradual improvement in domestic demand and widening improvement in manufacturing activity in the fourth quarter. Our 2021 growth forecast for the region is slightly lower at 3.0% compared with 3.1% earlier, while outer years are unchanged.

Malaysia was the key driver of the downward revision as the economy contracted 4.5% year over year in the third quarter owing to tight lockdowns and limited fiscal stimulus compared with 2020. Subsequent lockdowns are likely to be milder.

More than three-quarters of Malaysia's population is now fully vaccinated and authorities are looking to open up the economy. However, the weak third quarter will weigh on full-year growth. We lower our growth forecast for the year to 2.6% from 3.2% earlier. The weak base in 2021 has prompted us to raise our forecast 2022 growth to 6.3%, from 6.0% earlier.

In contrast, growth in the Philippines surprised on the upside with year-over-year expansion of 7.1%. This surpassed the consensus expectation for a 4.8% increase, on strong consumer activity. We mark growth in the Philippines higher at 5.0% in 2021 compared with our forecast of 4.3% earlier. The stronger 2021 base means that we lower our 2022 forecast to 7.4%, compared with 7.7% earlier.

Advanced economies: Bouncing back from a weak third quarter

Japan's third-quarter GDP shrank 0.8% in seasonally adjusted terms, a weaker performance than we anticipated. Lockdowns in the country have been among the lightest in Asia. However, a COVID-19 escalation led to a sharper-than-expected reduction in consumption and investment. In addition, auto production slowed due to semiconductor shortages. A recently announced addition to fiscal stimulus spending will support the 2022 outlook but will have modest impact--previous stimulus rounds have added more to savings than to spending.

Korea's economy in the third quarter grew 0.3% from the previous quarter in seasonally adjusted terms. Private consumption declined as a sharp drop in services outweighed a rise in durable goods consumption. Investment fell as well. Net exports continued to drive growth, with some near-term upside as supply chain bottlenecks ease.

Australia and New Zealand are likely to report weak third-quarter data as both countries saw pandemic escalations and fresh lockdowns. However, there is considerable pent-up demand and indicators such as job postings suggest a quick labor market recovery. This suggests growth will bounce back strongly in the fourth quarter as the economies reopen. We are also likely to see continued strong increases in housing prices, which will be watched closely by central banks.

For the advanced economies group, we lower our 2021 forecast to 3.4% compared with our earlier forecast of 3.6%. Downward revisions in Japan and Australia drive these changed forecasts, which was partially offset by a higher growth forecast for Taiwan. We assume slightly higher growth of 2.7% in 2022 compared with our earlier forecast of 2.6% driven by higher forecasts for Japan, Australia, and New Zealand.

Table 1

Real GDP Forecast Change from September 2021 Forecast
(% year over year) 2020a 2021 2022 2023 2024 2021 2022 2023
Australia (2.4) 3.9 3.5 2.8 2.5 (0.3) 0.2 0.0
China 2.3 8.0 4.9 4.9 4.8 0.0 (0.2) (0.1)
Hong Kong (6.1) 6.5 2.5 2.0 1.9 0.0 0.0 0.0
India (7.3) 9.5 7.8 6.0 6.5 0.0 0.0 0.3
Indonesia (2.1) 3.3 5.6 4.8 4.8 (0.1) 0.0 0.0
Japan (4.7) 1.9 2.3 1.2 1.0 (0.4) 0.1 0.0
Malaysia (5.6) 2.6 6.3 5.2 4.5 (0.6) 0.3 0.0
New Zealand (1.1) 5.3 3.0 2.8 2.6 (0.1) 0.3 0.0
Philippines (9.6) 5.0 7.4 7.3 7.2 0.7 (0.3) (0.1)
Singapore (5.4) 6.5 4.1 3.3 2.8 (0.1) 0.1 0.2
South Korea (0.9) 3.9 2.7 2.5 2.4 (0.1) (0.1) 0.0
Taiwan 3.1 5.8 2.8 2.6 2.5 0.3 (0.1) 0.0
Thailand (6.1) 1.2 3.6 4.2 2.9 0.1 0.0 0.0
Vietnam 2.9 1.9 7.5 7.3 6.7 (2.3) 0.4 0.3
Asia Pacific (1.5) 6.7 5.1 4.6 4.5 (0.0) (0.1) 0.0
Note: For India, 2020 is fiscal year 2021 (year ending March 31, 2021), 2021 is fiscal year 2022 (year ending March 31, 2022), and so on. a--Actual. Source: S&P Global Economics.
As COVID risks linger, risks to China's growth rise

We see three risks to our baseline forecast in Asia-Pacific.

We are still in the throes of a global pandemic and new variants continue to pose risks to economic recoveries. Just as Asia-Pacific was learning to live with the virus, the new omicron variant is already disrupting economic reopening. Living with the virus has reduced COVID's impact on the economic outlook for two reasons. First, as governments have learned to manage the pandemic better, the extent of lockdowns for a given number of infections has diminished. Second, for a given level of lockdown, the effects on economic activity have reduced as people have adapted to lower mobility. Potential new outbreaks of unknown severity cast a shadow on this narrative.

We believe the new omicron variant is a stark reminder that the COVID-19 pandemic is far from over. Although already declared a variant of concern by the World Health Organization, uncertainty still surrounds its transmissibility, severity, and the effectiveness of existing vaccines against it. Early evidence points toward faster transmissibility, which has led many countries to close their borders with southern Africa or reimpose international travel restrictions. Over the coming weeks, we expect additional evidence and testing will show the extent of the danger it poses to enable us to make a more informed assessment of the risks to credit. Meanwhile, we expect the markets to take a precautionary stance and governments to put into place short-term containment measures. Nevertheless, we believe this shows that, once again, more coordinated, and decisive efforts are needed to vaccinate the world's population to prevent the emergence of new, more dangerous variants.

A second risk specific to Asia-Pacific is the shape of recovery. As the "factory of the world," the region has benefited from the global shift to durable, manufactured goods during the pandemic as consumers have substituted away from services. This has resulted in an outsized contribution to growth from net exports, in many cases offsetting weak domestic demand. However, as vaccinations spread, economies reopen and sectors locked down during the worst of the pandemic return to normal, spending could shift back toward pre-pandemic norms. This would reverse the benefits that accrued to Asia-Pacific since last year and potentially slower growth and trade.

Chart 4


The full implications of China's evolving growth model present the largest downside risk to our outlook for Asia-Pacific. This has two distinct time profiles. Beijing's acceptance of slower growth as a fair tradeoff for reining in credit excesses in the real estate sector and greater financial stability should support sustainable growth down the line. This process has been orderly so far, but it has just begun. The giant size of the property sector underscores the importance of this shift.

Risks regarding China over the next five to 10 years are more far-reaching. The country is looking more inward, to focus on greater industrial and technological self-reliance. Its curbs on some private-sector entities, particularly property and technology firms, may hit productivity gains, which should be the main growth driver for the next five years at least. The labor force is shrinking, and capital accumulation has decelerated markedly due in part to tighter financing. Slower Chinese growth will slow expansion of the global economy, to which China has been the largest contributor for two decades (by a wide margin). It will also hit trade. China is the largest trading partner for a rising list of countries through its demand for commodities and its position in supply chains.

Regaining the global lead?

The post-vaccination discovery phase of the pandemic put the Asia-Pacific in an uncharacteristic position: global laggard. Initially the envy of the fight against COVID-19, the slow uptake of vaccines and the common use of lockdowns have led to economic underperformance. Mobility remained constrained, service sectors were slow to open, and growth was overly reliant on external demand--even by historical regional standards.

That narrative appears to be changing. Vaccination rates are up across much of the region, lockdowns are being eased, and travel restrictions are being lifted. The pace has been gradual but appears set to pick up speed. Unusually, China will not be the driver in this effort as its focus on financial stability and its efforts to curb excesses in the property sector will lead to a long overdue and largely healthy moderation in growth. But for the rest of the region, getting ahead of the COVID-19 curve and a normalization of supply chain congestion points to a brighter 2022 and beyond.


Table 2

Inflation (Year Average)
(%) 2020a 2021f 2022f 2023f 2024f
Australia 0.9 2.6 2.8 2.3 2.2
China 2.5 1.0 2.1 2.2 2.2
Hong Kong 0.3 1.3 1.8 1.9 1.8
India 6.2 5.5 5.0 4.5 4.5
Indonesia 2.0 1.5 2.7 2.9 2.8
Japan 0.0 (0.2) 0.9 0.6 0.7
Malaysia (1.1) 2.3 2.0 1.9 2.0
New Zealand 1.7 3.7 3.2 2.3 2.2
Philippines 2.6 4.5 2.4 2.4 2.5
Singapore (0.2) 2.1 2.0 1.7 1.7
South Korea 0.5 2.4 2.0 1.3 1.3
Taiwan (0.2) 2.0 1.5 1.0 0.9
Thailand (0.8) 1.0 1.4 1.0 1.0
Vietnam 3.2 1.8 3.3 4.0 4.5
Note: For India, 2020 is fiscal year 2021 (year ending March 31, 2021), 2021 is fiscal year 2022 (year ending March 31, 2022), and so on. a--Actual. f--Forecast. Source: S&P Global Economics.

Table 3

Policy Rate (Year End)
% 2020a 2021f 2022f 2023f 2024f
Australia 0.10 0.10 0.10 0.50 1.00
India 4.00 4.25 4.75 5.25 5.25
Indonesia 3.75 3.50 4.00 4.50 4.50
Japan (0.10) (0.10) (0.10) (0.10) (0.10)
Malaysia 1.75 1.75 2.00 2.50 2.50
New Zealand 0.25 0.75 1.25 1.75 2.00
Philippines 2.00 2.00 2.00 2.75 3.00
South Korea 0.50 1.00 1.50 1.50 1.50
Taiwan 1.13 1.13 1.38 1.38 1.38
Thailand 0.50 0.50 0.50 0.50 0.50
Note: For India, 2020 is fiscal year 2021 (year ending March 31, 2021), 2021 is fiscal year 2022 (year ending March 31, 2022), and so on. a--Actual. f--Forecast. Source: S&P Global Economics.

Table 4

Exchange Rate (Year End)
2020a 2021f 2022f 2023f 2024f
Australia 0.8 0.7 0.7 0.7 0.8
China 6.5 6.5 6.4 6.4 6.3
Hong Kong 7.8 7.8 7.8 7.8 7.8 `
India 72.9 75.0 76.0 77.0 78.0
Indonesia 14,050.0 14,350.0 14,550.0 14,660.0 14,750.0
Japan 103.5 114.0 115.0 116.0 117.0
Malaysia 4.0 4.2 4.2 4.3 4.3
New Zealand 0.7 0.7 0.7 0.7 0.7
Philippines 48.0 50.3 50.7 51.5 51.5
Singapore 1.3 1.4 1.3 1.3 1.3
South Korea 1,088.0 1,185.0 1,195.0 1,207.0 1,219.0
Taiwan 28.5 27.8 28.1 28.3 28.5
Thailand 30.0 32.8 33.0 32.8 32.5
Note: For India, 2020 is fiscal year 2021 (year ending March 31, 2021), 2021 is fiscal year 2022 (year ending March 31, 2022), and so on. a--Actual. f--Forecast. Source: S&P Global Economics.

Table 5

Unemployment (Year Average)
(%) 2020a 2021f 2022f 2023f 2024f
Australia 6.5 5.1 4.5 4.3 4.2
China 5.7 5.2 5 4.9 4.8
Hong Kong 5.8 5.4 4.3 4.1 3.8
Indonesia 6.2 6.4 5.8 5.5 5.2
Japan 2.8 2.8 2.5 2.4 2.3
Malaysia 4.5 4.6 4.3 3.8 3.7
New Zealand 4.6 3.9 3.7 3.7 3.6
Philippines 10.4 7.7 6.0 5.5 4.3
Singapore 3.0 2.7 2.3 2.3 2.2
South Korea 4.0 3.5 3.0 2.9 2.8
Taiwan 3.8 4.0 3.6 3.5 3.5
Thailand 1.7 2.1 2.0 1.7 1.4
a--Actual. f--Forecast. Source: S&P Global Economics.

Related Research

This report does not constitute a rating action.

Global Chief Economist:Paul F Gruenwald, New York + 1 (212) 437 1710;
Asia-Pacific Economist:Vishrut Rana, Singapore + 65 6216 1008;

No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, (free of charge), and (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at


Create a free account to unlock the article.

Gain access to exclusive research, events and more.

Already have an account?    Sign in