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Domestic demand vs tourism revival may spur uneven Asian recovery
A recovery in domestic demand in emerging Asia will help many of the region’s economies achieve stronger growth this year than in 2021, according to Fitch Solutions. However, it warned that tourism-dependent economies will face an uneven recovery.
“While many Asian emerging markets will see slowing export growth in 2022, we’re going to see a strengthening of domestic demand across many countries,” said Cedric Chehab, Global Head of Country Risk. “This is because vaccination rates are much stronger, restrictions are easing and many economies are starting to normalise a bit more. These dynamics will actually see some economies post an acceleration in growth.”
Vietnam, the Philippines, Malaysia, Indonesia and Thailand had sluggish growth last year and Fitch Solutions forecasts stronger growth in 2022. However, it said India and China will both see growth slow on the back of strong gross domestic product in 2021. Developed markets in Asia will see a slowdown similar to developed markets around the world, it said.
Tourism-dependent economies face a number of problems according to Fitch Solutions. It pointed to figures from the UN World Tourism Organization. They showed that in November and December last year 65 percent of Asia-Pacific destinations were closed, compared with only seven percent of European borders. Even countries that started reopening, such as the Philippines, Thailand and Malaysia saw a weak recovery in international flights. An overreliance on tourists from China is another contributing factor to a weak recovery.
“China’s Zero-Covid strategy means that Chinese tourists are no longer travelling, which will be a challenge for the recovery in these sectors in these countries,” Chehab said. “Although European and US tourists are starting to return to the tourism market, we think a majority of them are showing a preference for short-haul flights which means they won’t really pick up the slack created by China.”
Fitch Solutions noted high vaccination rates in much of emerging Asia have allowed economies to reopen but added a caveat.
“Many of these economies that do have high vaccination rates have mostly relied heavily on the less-effective Chinese vaccines, which means that these high levels of vaccinations offer less protection than we’re seeing in many developed countries that relied on mRNA vaccines,” Chehab said.
Cambodia has double-vaccinated 94 percent of the population, according to the Reuters Coronavirus Tracker. While many people received initial shots of Sinopharm and Sinovac, that was followed up with an AstraZeneca booster and frontline workers will soon be offered Pfizer as a fourth shot.
Fitch Solutions says other challenges include rising inflation, political and geopolitical risk.
It said Asia will continue to see elevated levels of inflation that will remain above some central bank targets.
“The difference between Asia and other regions is that inflation across Asia was not as elevated and not as strong as we saw across emerging markets in general,” Chehab said. “We think this trend is going to change in 2022 with more Asian central banks hiking interest rates in response to elevated inflation and stronger growth.” He cited New Zealand, the Philippines, India, Indonesia and Malaysia as countries where central banks will tighten monetary policy.
As for domestic political risk, Fitch Solutions said the combination of an uneven economic recovery, elevated inflation and pandemic fatigue may cause instability in some countries in the region.
“This could manifest itself in the form of backsliding of reforms, rising social unrest as well as election uncertainty as incoming governments may lose support. We think these issues will cause policy challenges for many governments,” Chehab said. “Vaccine mandates could result in a backlash in many countries, while elevated energy prices could cause significant political uncertainty, as has been the case in Europe in recent weeks.”
Fitch Solutions said geopolitical risk will continue to be problematic for the Asia-Pacific this year given China’s party congress and Taiwan elections, which may further inflame cross-Strait tensions. With elections in the Philippines, it said a new president may take a less accommodative approach to China on territorial disputes in the South China Sea. Finally souring US-China relations are likely to continue with continuing trade tensions and the likelihood of Washington continuing to pursue its investigation into claims the Coronavirus originated in a Chinese laboratory.
Source: https://www.khmertimeskh.com/501006028/domestic-demand-vs-tourism-revival-may-spur-uneven-asian-recovery/