Macro Insights Weekly: A peek into 2Q

Thanks to favourable base effects, the first half of this year will present headline-pleasing real GDP growth numbers in Asia. But such figures will hide highly heterogenous economic outcomes.
Group Research05 Apr 2021
  • Our Nowcasting model shows China with genuine economic momentum in 1H21
  • India is on course to rebound in 2Q21, but its outlook is cloudy with the worsening pandemic picture
  • Indonesia is struggling to find normalcy, as pandemic management remains challenging
  • Singapore has some tailwind at last, with retail sales and property markets appearing buoyant
  • In all cases, strong electronics demand and rising commodity prices are helping the outlook
Photo credit: AFP Photo

Commentary: A peek into 2Q in Asia
Thanks to favourable base effects, the first half of this year will present headline-pleasing GDP growth numbers, but they will hide highly heterogenous economic outcomes. Our in-house GDP Nowcasting models have a fairly confident take on the 1Q21 outturns already; they are also providing early predictions for 2Q. Below we take stock of the Nowcasting estimates and consider their implications for China, India, Indonesia, and Singapore.

The only economy in our sample that will end 1Q21 ahead of the level of real GDP two years ago is China, which is on track to report 8-10% growth for all of 2021. China’s economic momentum is decidedly upward, revealing far more than base-effect driven outcomes. Industrial production, retail sales, and trade have been particularly strong, while fixed asset investment and bank loans growth have been relatively underwhelming. Even as base effects fade and growth numbers come down to earth, China is on course to grow by 8-10% this year, with our models pointing to an outcome at the top of that range.

India should be leaving the worst of the crisis behind, but its outlook turned cloudy due to the ongoing resurgence in the pandemic. We continue to believe that the economy will be able to shrug off sporadic lockdowns and mobility disruptions as the year progresses. Given that its base effect from lockdown will not fully show up in the data till 2Q, there won’t be any China-style blockbuster print in 1Q (Our Nowcast model has growth at 0.4% for Jan-March). A big jump in GDP growth print in 2Q21 will still leave the level of real GDP lower than it was two years ago.

With production, freight traffic, and retail sales coming back to life, and policies remaining accommodative, even partial success in pandemic management should help growth prospects in the near term. Lacklustre trade performance is not helpful, but a series of structural policies enacted in recent months may enhance India’s export footprint in the medium term.

Our annual growth forecasts (9%+ in 2021 and 5%+ in 2022) mask the fact that India is on track to have a disappointing string of economic outcomes. The pandemic is a key factor, but it must also be recognised that India came into the crisis on a particularly weak footing (2019 growth was just 4%). As per our estimates, India’s real per capita income growth would average no more than 2% during the half decade spanning 2018-22, far short of the aspirations of its population or policy makers. The pandemic’s scar will be deep, unfortunately.

Like India, Indonesia’s attempts to leave 2020 behind is being complicated by the difficulties posed by the pandemic. Travel and tourism remain highly disrupted, and the daily infection rates were only marginally better in March than in February. Economic recovery, therefore, remains patchy despite a pick-up in exports (helped by rising commodity demand) and business sentiments. While GDP growth is unlikely to be commanding the headlines with 2-4% print in 1H21, the outlook could brighten considerably if vaccination picks up, and the external travel/tourism sector starts seeing some semblance of life.

Singapore appears to be catching some tailwind. Vaccination has picked up, with a quarter of the population receiving at least one dose by the end of March. Travel bubbles with a few select economies are being formed, domestic retail sales have turned buoyant, property market is strong, and exports are picking up. It won’t be until next year before the lost GDP of 2020 is revisited, but the 2Q21 growth outturn will likely command headlines and mark a point of leaving the worst behind, in our view.

To read the full report, click here to Download the PDF.

Taimur Baig, Ph.D.

Chief Economist - G3 & Asia
[email protected]

Radhika Rao

Economist – India, Indonesia, Thailand & Eurozone
[email protected]

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