Moody’s: AsiaPac's strong rebound masks deep economic scars

The economic rebound, fuelled in large part by China (A1 stable), masks a range of output losses across the region.

KUALA LUMPUR: Moody’s Investors Service expects Asia-Pacific's economic activity likely will rebound strongly in 2021 and 2022 as compared with recent performance.

In its report on Tuesday, it pointed out however, region's overall output will likely fall short of pre-pandemic forecasts by 2023 because of deep economic scars from the pandemic.

The rating agency said Asia-Pacific likely will grow faster in 2021-22 than the Middle East & North Africa and Latin America, but performance will increasingly diverge within the region.

The economic rebound, fuelled in large part by China (A1 stable), masks a range of output losses across the region.

"We forecast about 30% of Apac economies will face a modest degree of scarring, experiencing an output decline of 2%-8% below our pre-pandemic forecast GDP levels by 2023.

“These include mainly lower-to-upper middle-income economies and those struggling to contain a virus resurgence, such as Malaysia (A3 stable), Indonesia (Baa2 stable) and Thailand (Baa1 stable)," says Deborah Tan, a Moody's assistant vice president and analyst.

She said more than 40% of the region's economies will have output losses exceeding 8% of pre-pandemic GDP forecast levels.

Economies with the deepest scarring generally have concentrated economic structures or weaker institutional capacity.

These are economies with lower-middle incomes, with deep scarring likely to increase social risks.

In some of these economies, high debt burdens are limiting governments' fiscal space to withstand the pandemic.

Economies that emerge relatively unscathed have generally mounted effective health responses and provided more fiscal support.

Nearly 30% of Asia-Pacific's economies will record strong post-pandemic growth and return to pre-crisis GDP levels by 2022 or 2023. These economies mainly have high incomes, mature institutions, strong healthcare infrastructure and dynamic labour markets.

Secular trends accelerated by the pandemic could affect the depth of scarring beyond 2023. These include automation and trade regionalisation, which could have longer-lasting effects on social risks and the reallocation of investments across countries.

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