APAC economies are recovering from the initial shock of the Covid-19 pandemic, but intra-regional disparities in the magnitude of the shock and durability of growth outlooks are increasingly evident, says Fitch Ratings.
“We expect APAC economic growth to rebound to 7.2% in 2021 after last year’s contraction of 0.9%, underpinned by continued momentum in China and a rebound in India. However, rapid growth in part reflects the scale of the shock in 2020. The underlying economic outlook for North Asia, Australia and New Zealand remains better than for south-east Asia and India partly due to their greater success in containing the virus. North Asia, in particular, is also benefitting from strong global demand for electronics and semiconductors,” Fitch analysts said in a report.
According to Fitch, the pandemic continues to challenge regional growth outlooks, as highlighted by a renewed surge of cases in India, which could present risks to our forecast of 12.8% growth in the fiscal year ending March 2022. Vaccination programmes offer potential relief, but progress has mostly been slow in APAC, and further challenges may arise from variant Covid-19 strains.
Support to counter the pandemic’s effects continues to weigh on credit metrics in most sovereigns, Fitch said, adding that only China is making a concerted effort to withdraw stimulus. Further waves of the virus could cause the pace of fiscal consolidation among APAC sovereigns to diverge from our assumptions over 2021-2022.
Nonetheless, firming growth prospects contributed to our decisions in April to revise the Outlook on Vietnam’s rating to Positive, from Stable, and the Outlook on Macao’s rating to Stable from Negative.
“Our confidence in growth prospects, and the consequent implications for public finances, will influence how we resolve the Negative Outlooks that remain on sovereign ratings in Australia, India and Japan,” Fitch said.