- China will be a key driver of global growth in 2021, with the nation's firm handle on the coronavirus putting it in an enviable position compared to its peers
- Japan is looking to "Sugenomics" to jumpstart its sluggish economy, while the central bank has already exhausted many policy options.
- Within Emerging Asia, the recovery is likely to be more muted in 2021 as it enters a more mechanical phase.
- India's central bank must balance concerns about a slower economy with the potential for spurring excessive inflation and a currency depreciation. A higher debt load from Covid-related spending might reduce the likelihood of another fiscal package
- Other parts of Emerging Asia are facing political risks that could impede growth, though Vietnam is a bright spot, with positive growth likely given its success containing the virus and position as a beneficiary of US-China trade tensions.
The world will be watching China as a driver of global growth in 2021. The nation is in a strong place as it approaches the hundredth anniversary of the Communist Party of China's founding, with a firm handle on the coronavirus, and a healthy growth rebound expected in 2021, and the likelihood for reduced US-China trade uncertainties under a Biden presidency. While we see some bright spots in other parts of Asia, prospects are generally more muted, solidifying China's position as the key to growth in the region and globally.
China enters the new year from an enviable macro position
Asia's largest country was the first to impose targeted lockdown restrictions due to the Covid-19 outbreak and was likewise the first to post signs of recovery, despite a much more modest fiscal and monetary policy response (thanks to already sky-high debt levels) compared to its major economic peers. The People's Bank of China cut its main policy rate, the five-year loan prime rate, by just 15 basis points (bps) this year, a fraction of the Federal Reserve's 150-bp cut, and Chinese policymakers announced a US$724 billion Covid-19 fiscal package, which pales in comparison to the $2.3 trillion CARES Act announced in the US (with more stimulus likely to come).
China's virus containment efforts have largely succeeded, with official numbers indicating a more or less flat daily case curve since April. Furthermore, alternative activity indicators and mobility indices paint a consistent picture of China humming close to pre-Covid levels during the second half of 2020. As a result, China is one of the very few economies, and clearly the largest, likely to post GDP in positive territory compared to pre-Covid levels, with a healthy rebound expected in 2021 driven by the opening-up of credit channels and recovery in global growth. We also expect monetary policy to remain dovish as the world continues to recover from the Covid-related shock. Credit growth, China's preferred stimulus lever, will likely remain elevated in 2021, providing an overall tailwind for growth.
To read the full version of PineBridge's Asia Economic Outlook and access further insights from our senior investment leadership on what investors might expect in 2021, please visit PineBridge's Investment Outlook 2021 hub
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