ECONOMY CONTRACTS SHARPLY BUT GRADUAL RECOVERY UNDERWAY
Although lockdowns and other strict restrictions in most Asia Pacific markets have largely been lifted and economic activity has resumed, the depth and breadth of the recovery is uneven. According to the CBRE Recovery Index, New Zealand, Mainland China, Taiwan and Vietnam are relatively ahead of the curve, but India lags1.
Hopes of a sustained economic rebound rest upon the effective containment of the virus and the eventual development of a vaccine. Although the widespread imposition of strict large-scale national lockdowns remains unlikely, recent weeks have seen the reintroduction of local lockdowns and/or social distancing regulations in several markets such as Melbourne and Hong Kong SAR, where there has been a surge in new infections.
Authorities continue to provide measures to cushion economies from the impact of the downturn and support labour markets. Australia recently extended its JobKeeper scheme to Q1 2021 while Singapore plans to create 100,000 jobs and training opportunities over the next year. Central banks across the region retain a loose approach to monetary policy, with interest rates now at historical lows.
GDP growth in Mainland China returned to positive territory in Q2 2020, registering a gain of 3.2% y-o-y after contracting by -6.8% in Q1 2020. CBRE has therefore upgraded its full-year growth forecast for Mainland China to 2.3%. GDP forecasts for Australia and New Zealand have also been upgraded to a milder contraction in growth following a recovery in commodities prices.
CBRE expects Japan’s GDP to fall to -6% in 2020. While retail sales and industrial production registered m-o-m improvements in June, recent Tankan surveys of business sentiment have been mixed. Large corporates expect a moderate improvement in business conditions in H2 2020, but SMEs are relatively more pessimistic.
With most other regional markets facing a slow rebound from the pandemic, CBRE forecasts a checkmark-shaped recovery across Asia Pacific, characterised by a fast downturn followed by a slow rise. However, the likelihood of a prolonged pandemic and further escalation in geopolitical tension between Mainland China and the likes of the U.S., Australia and India, may further weigh on business confidence and delay the economic recovery.
FIGURE 1: CBRE HOUSE VIEW - GDP GROWTH FORECAST 2020 & 2021
Source: CBRE Research, July 2020
1 A system that tracks 12 of the most frequent and consistent recovery parameters including economic activity, transportation/ mobility, tourism, workplace and retail and entertainment activity. A score between 1 to 5 is given to measure their recovery from 2019 levels (1 represents most restrictions remaining in place and 5 represents activity recovering to pre-pandemic levels).