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GDP Levels In Asia To Exceed Pre-Covid-19 Path From First Quarter Of 2022: Morgan Stanley

The report said strength in exports and Capex has lifted Asia’s overall GDP closer to its pre-Covid-19 path.

HONG KONG — The Covid-19 pandemic remains an overhang on the near-term growth outlook of Asia, and lockdown measures are constraining consumption growth, American investment bank and financial services company Morgan Stanley said on Aug. 20.

Strength in exports and Capex has lifted Asia’s overall GDP closer to its pre-Covid-19 path. Still, consumption remains below its pre-Covid-19 way, it said in a research report titled “The Viewpoint: The Next Phase in Asia’s Recovery” authored by Chetan Ahya, Derrick Y Kam, and Jonathan Cheung.

However, the report forecast vaccination rates for the adult population reaching 80 percent or higher in 10 out of 12 economies (accounting for 95 percent of the region’s Gross Domestic Product) in the area by the fourth quarter of 2021.

“These high rates of vaccinations will allow policymakers to shift their Covid-19 management strategy and allow restrictions to be relaxed, which we expect in turn lead to a full-fledged recovery in growth from early next year,” the report said.

Powered by all its engines, said the report, Asia’s growth momentum should improve in the coming quarters. GDP levels will exceed their pre-Covid-19 path more meaningfully from the first quarter of 2022.

“The Asia-US growth differential should swing back in Asia’s favor from March-April 2022,” the report said.

Over the medium term, Asia is likely to show a significant turnaround in productivity dynamics. With the return of strong external demand conditions, similar to 2003-07, Asia is well-positioned to improve its productivity dynamics and stabilize its leverage ratios.

“Over 2021-22, we expect Asia to post the strongest incremental gains in nominal USD GDP across the three regions of Asia, the Americas, and Europe,” said the report.

“We project a gain of a cumulative $6.4 trillion in nominal GDP over 2021-22.”

Corporate bond yields in Europe are at all-time lows, while U.S. companies haven’t been able to borrow this cheaply since the early 1950s,” said Andrew Sheets, Chief Cross-Asset Strategist of Morgan Stanley on trends across the global investment landscape in a blog.

“Mortgage rates from the U.S. to the Netherlands are at historic lows, and it’s a similar story of cheap funding for government bonds.”

“But even more important is the fact that these costs are low relative to growth and inflation. If you borrow to pay for an asset—like equipment or infrastructure or a house—its value is probably going to be tied to the price levels and strength of the overall economy,” said Sheets.

“This is why deflation and weak growth can be self-fulfilling: if the value of things falls every year, you should never borrow to buy anything, leading to less lending activity and even more deflationary pressure.”

Sheets said that Morgan Stanley’s global growth forecasts remain optimistic.

(With inputs from ANI)

Edited by Saptak Datta and Praveen Pramod Tewari