China leads Asia-Pacific's uneven recovery - S&P

    China will continue to lead Asia's uneven recovery from COVID-19 economic disruption. S&P Global Ratings has revised up its 2020 GDP forecasts for China as well as for Korea, Taiwan, and Vietnam amid stronger trade and consumer spending.
  The credit rating agency now expects normalization to take longer in India, Japan, Australia, and most of Southeast Asia.
  "The pandemic is not over but the worst of its economic impact has passed," said Shaun Roache, Asia-Pacific chief economist for S&P. "Governments are adopting more targeted strategies for flattening COVID curves, with less recourse to nationwide lockdowns. Households are spending again on services as well as goods."
  COVID-19 is proving hard to beat but fatality rates are falling and prospects have brightened for a widely available vaccine by mid-2021 (S&P Global Ratings' baseline assumption). In the meantime, people are moving and spending more, testament to a world becoming accustomed to COVID-19. Trade, for example, has bottomed.
  As a whole, S&P expects Asia-Pacific economies to shrink by 2% in 2020 and rebound by 6.9% next year. This will still leave the region almost 5% below the pre-COVID trend by the end of 2021.
  "The hard work now begins," noted Roache. "As relief measures taper, we will find out how much economic damage has been wrought."
  Fading temporary tax cuts, wage subsidies, loan moratoriums, and other measures will force banks, businesses, and households to make hard decisions. Businesses only getting by due to grace periods on servicing debt may be forced to close up shop. Banks will have to assess whether to restructure or foreclose on questionable loans. The true deterioration across balance sheets will become apparent even as economies reopen.
  The employment situation will be a key determinant of the strength of the recovery. S&P expects employment to return to pre-COVID trends only by 2022, at the earliest, in most cases. This will put a lid on wages, drag on consumer spending, and keep inflation low across the region. With fiscal policies and financial conditions likely to tighten, central banks have no option but to keep policies exceptionally easy.
  Trade and manufacturing will contribute to Asia-Pacific's growth but a self-sustaining recovery will require a service sector rebound. Of Asia-Pacific's 1.63 billion workers, about 270 million or 17% of the total, worked in manufacturing, based on International Labor Organization estimates for 2019. This is a large number but it is only 7 million jobs higher than a decade ago. About 18% of the total, or 300 million people, worked in the hospitality and retail sectors, an increase of more than 60 million jobs over the past decade. Other services account for more than 440 million jobs. Only when the service sector normalizes will the region get back to full employment.
  Strategic choices in the U.S.-China relationship are crystallizing with profound implications for productivity in the long term. China's new "dual circulation" policy may represent a harder turn toward self-reliance in industries where China sees risks of global supply chain disruptions. Such industries range from software and semiconductors to energy and agriculture. The agency's analysis suggests that a more self-reliant China could mean an average growth rate closer to 3.5% through 2030 compared with 4.6% in S&P's base case.