IMA Analysis

Tuesday April 20, 2021

Asia Brief - April 2021

The IMF, in its bi-annual World Economic Outlook 2021, has lifted its forecast for global growth in 2021 to 6% from the 5.5% anticipated in January. The recovery is driven by two countries: the US and China. America is expected to grow by a remarkable 6.4% in 2021 (up from 5.1% forecast earlier) and China by 8.4% (up from 8.1%). The IMF’s forecast also points to a fast realignment of global market share, with China rising to 20% of global demand by 2026 from 16% in 2019 and 9% in 2010.

Manufacturers face two key challenges in 2021. Firstly, demand is surging in many sectors on account of stimulus measures and pent up demand. This is triggering serious supply chain glitches and acute input shortages. This is likely to get worse each quarter to the end of 2021. The second challenge – as always in a rebound – is aligning inventory and capex plans.

In this context, stands a renewed COVID-19 surge in many countries caused by more dangerous variants. In Asia, India, Indonesia and the Philippines are specifically at risk. An additional metric that has emerged this year is vaccination capacity, with countries around the world struggling to source adequate supplies. Moreover, there is the risk of new virus variants developing that may overcome current vaccines, implying that more Covid-19 waves cannot be ruled out in the months ahead.

Ranking second to the demand puzzle in planning for 2021 is inflation and pricing uncertainty. The latest consumer inflation numbers remain near record lows and central banks, led by the US Fed, say they will keep record low policy rates for several more years. Yet, anecdotally, there is growing evidence of a surge in supply chain costs, with many manufacturers lifting prices on finished goods by 10% or more. Sooner or later, official statistics will begin to reflect this.

Last year, we expected a slide in the US dollar, which started in May, to run for several months as global capital realigned after years of success in the US. But with a surprisingly strong US recovery emerging in early 2021, the US dollar has swung back to appreciation.

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