A regional outlook

I have Associates around Asia and each month we submit a summary of how we see our country. Richard Martin, the kind-of leader of our egalitarian group, starts with an evaluation of the world. I thought you might find it interesting (abbreviated).

By May 20, reported COVID-19 cases had reached 165m (2 percent of the global population), which is likely a gross underestimation. In countries with governments that count well but are poorly managed the pandemic the rate was much higher. Vaccination is gaining ground with 9.5 percent of the global population of 7.8 billion vaccinated and 4.8 percent fully vaccinated but there is a long and complicated road ahead, which governments and companies need to focus on. New virus variants (the India and UK versions) appear to require both shots for protection, so the strategy of a fast rollout of the first jab is less useful. Global production challenges range from materials shortages to India’s halt to vaccine exports until Q4’21, which undermines the global COVAX campaign. Even in countries with high full vaccination rates (38 percent US, 31 percent UK, and 59 percent Israel) the fuzzy prospect of herd immunity is receding, with over a third of the population ranging from vaccine hesitant to anti-vaxxers. This will complicate a return to international travel for years. Rather than planning for a single transition from the pandemic to a post-pandemic world, companies may want to think of a series of stages over several years. The 2021 recovery is driven by just two countries. The US (23 percent of global demand) is set to rebound by 5.4 percent this year followed by 4.8 percent in 2022 after a 3.5 percent fall in 2020 and a decade average of 2.3 percent pa to 2019. China (19 percent of demand) is expected to grow 8.5 percent this year and 6.2 percent in 2022 after 2.3 percent growth in 2020 and 7.7 percent pa for the decade to 2019. With both countries exceeding their pre-pandemic growth trends, demand for commodities and a wide range of goods is soaring. As is suggested by the above commentary, the 2021 outlook for some of Asia’s big export manufacturers is complicated. On one hand, a surge in export manufacturing is set to lift economies like Taiwan, Korea, Japan, Vietnam, Singapore, Malaysia, and Thailand. Yet each of these economies is grappling with a new wave of COVID-19, which they should suppress quickly but at a cost to growth. COVID-19 has provided a clear test of the capacity of governments and political leaders. Communist governments in China and Vietnam have earned enormous “performance” legitimacy (as opposed to electoral legitimacy) by excelling at pandemic management. In the democracies, New Zealand and the states of Australia have also been bolstered by very strong popular support for tough lockdowns that suppress COVID-19. By contrast, governments that fumbled their response have been weakened. This is the case in Japan, Malaysia, Thailand, and Korea. As China will account for half of Asia’s GDP this year, its 8.5 percent growth lifts the regional growth rate. Australia and NZ should also outperform, as should Vietnam and Taiwan, provided they suppress their latest virus outbreaks. India, the Philippines, and Indonesia face weak growth in 2021 and 2022. That may continue for five or more years as household savings have been destroyed by the cost of COVID-19. As you can see from this evaluation, it looks like COVID-19 will be with us for some years yet. The Philippine government’s expectation of vaccinating 58 to 70 million people by November 2021 will be very difficult to achieve, and I’ll be hugely impressed if it happens. Frankly, I’m at a loss as to why government officials keep making rosy promises when time after time they have not been met. Don’t they realize it diminishes their credibility? Far better to give a realistic, even pessimistic forecast. So if they then, as is likely, exceed it, they look like heroes. That’s what Biden is doing, and it works. He inoculated more people than he promised. It makes him look good. As I’ve pointed out in previous columns, I don’t expect we’ll be living a somewhat more normal life till 2023. And then only if everything is more or less on track.

What further worries me is that we could make foolish decisions for reelection, rather than wise ones for recovery.

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