Asia — Leading the global recovery out of the COVID-19 slump

There are encouraging signs that Asia will lead the global economic revival. Decisive measures to control the pandemic have resulted in lower infection rates in Asian countries relative to other parts of the world, supporting policymakers’ ability to reopen their economies sooner. The performance of Asia’s economies is important to Australia’s export prospects, given the region is Australia’s largest and fastest growing export market. In 2018-19, Australia sent more than 77% of its goods and services exports to Asia.

Korea (3^rd largest export market), Taiwan (8^th), Vietnam (13^th), Japan (2^nd), Singapore (7^th) and Thailand (14^th) are each gradually lifting manufacturing production. China’s industrial sector is close to returning to output levels of early last year. These countries will be a vital source of demand as the world exits from the pandemic, particularly for Australian miners. Ongoing strength in resources exports is important given Asian consumers are likely to remain cautious, pointing to ongoing weakness in Australian services exports, notably education and tourism.

Tentative signs of the bottoming out in global demand is evident in Korea’s June trade data, the first to be reported among major economies. The pace of decline in Korean exports eased to -9.8% year-over-year in the first 10 days of June, from -23.7% in May (Chart). But Asia’s recovery will be tested by a still-weak global economy in the second half of 2020. The pandemic has led to overall global demand destruction and supply chain disruption amid a backdrop of increasing US-China geopolitical tensions. Reopening of economies carries the risk of a second wave of infections that could undermine the nascent recovery. Meanwhile, some large Asian countries are not out of the woods yet. Rising infection rates in India, Australia’s 5^th largest export partner, Indonesia (12^th), Bangladesh (29^th) and Pakistan (33^rd), risks weighing more heavily on their economic performance, and in turn, Australia’s export prospects.