GDP levels in Asia to exceed pre-Covid path from 1Q22: Morgan Stanley

Covid-19 remains an overhang on the near-term growth outlook of Asia and lockdown measures are constraining consumption growth, Morgan Stanley said on Friday.

Strength in exports and capex has lifted Asia's overall GDP closer to its pre-Covid path, but consumption remains below its pre-Covid path, 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 adult population reaching 80 per cent or higher in 10 out of 12 economies (accounting for 95 per cent of the region's GDP) in the region by 4Q21.

"These high rates of vaccinations will allow policymakers to shift their Covid 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."

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 path more meaningfully from 1Q22.

"The Asia-US growth differential should swing back in Asia's favour from March-April 2022."

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 stabilisze 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 dollars in nominal GDP over 2021-22.