Asia Outlook 2021

The Economist Intelligence Unit(The EIU) today published a report on their outlook on Asia in 2021, particularly on the trends to watch in three key economies, China, Indonesia and Japan.

RRT/China

 A strong headline recovery in GDP growth in 2021 will obscure some of the challenges faced by China’s economy, even as it has successfully brought Covid-19 under control. Sequential economic momentum will, in fact, be weak.

 We expect China to be among the first countries to begin large-scale distribution of a coronavirus (COVID-19) vaccine in 2021.

 In particular, China will hope global distribution of its vaccine can shore up its ties in the developing world, where it and Western countries, led by the US, will increasingly vie for influence.

Tightening monetary policy and a new risk-rating system for property firms will cause tremors in the property market in 2021, with third- and fourth-tier markets the most vulnerable. As the Chinese and world economies normalize, monetary policy in China will have a tightening bias this year.

 China’s President Xi Jinping grabbed the headlines when he announced that China would target peak emissions before 2030 and carbon neutrality by 2060. An early indication of China’s intent in meeting these goals will be reflected in the energy targets included in China’s next five year economic plan, which will be approved early this year.

 Indonesia

The transmission of Covid-19 will remain rampant in Indonesia in 2021, but the government will strive to avoid strict containment measures, such as the large-scale social restrictions enforced intermittently in 2020, in an effort to minimize economic damage.

The Omnibus Bill on Job Creation—the flagship economic programme of the president, Joko Widodo (known as Jokowi)—is an ambitious set of legislative amendments that aims to streamline the process of setting up new businesses and to reduce the cost burden on existing enterprises.

The pandemic will continue to cause fiscal strains for Indonesia; we forecast the budget deficit to be equivalent to 6.1% of GDP in 2021. Nevertheless, Jokowi has demonstrated a determination to find funds to support infrastructure projects.

Cutting against efforts to stimulate investment, we expect Bank Indonesia (BI, the central bank) will be forced to raise interest rates in 2021. This may appear counter-intuitive and, indeed, runs against market consensus. However, we believe that the vulnerability of the rupiah’s exchange rate will encourage BI to tighten monetary policy.

Japan

Japan’s new prime minister, Suga Yoshihide, has indicated that he will not look to upend “Abenomics”, the signature economic-reform policies built on accommodate monetary and fiscal policy introduced by his predecessor, Abe Shinzo.

Although Mr Suga’s institutional reforms will target various sectors, such as banking and telecommunications, the main element of the push will relate to the digitization of the economy. While an advanced manufacturing and robotics sector reflect Japan’s technological prowess, success in establishing a digital economy has been limited and this has constrained Japan’s economic growth.

Besides addressing the economic and health crises, Mr Suga will also be responsible for maintaining his Liberal Democratic Party’s (LDP) hold on power. The next vote for the lower house of the Diet (the parliament) is due in October 2021. *BTNewspaper/e/eiu