As we head towards the end of a tumultuous year and look towards 2021. Taplow partners across the globe have combined to give you local and regional insights on the business outlook for the new year.
Australia:
Unemployment is lower, GDP growth is higher, and like all countries the continued success for Australia is dependent on containing COVID-19. Consumer and business confidence are back at pre-COVID levels and 85% of the 1.3 million Australians who either lost their jobs, or saw their working hours reduced to zero, are now back at work.
With over 700,000 jobs created over the last six months, the labour market has performed better than expected. The September quarter saw an increase in GDP of 3.3%. This is the biggest quarterly rise since 1976. Real GDP is forecast to grow by 4.5% in 2021, following a reduction of 2.5% in 2020. There is optimism as Australia’s economic comeback is underway; ever since the COVID-19 pandemic began.
The Department of Foreign Affairs & Trade have been challenged with trying to bring over 39,000 Australians’ home. There has been considerable work that government officials have done to fulfil the Prime Minister’s Christmas hope to reunite Australian families. Finally, it is summer here and that means Cricket! Australia is hosting the Test Match Series with India as the visitors. Games have started and restricted crowds are attending.
China:
The Chinese economy was severely hit by the Covid-19 pandemic in 2020. Fortunately, due to strict control by using central power, the pandemic is under control. We expect the situation would be much better in 2021. Here are key points:
According to Noruma’s forecast, partly due to a low base, GDP growth could surge to 9.0% y-o-y in 2021, from an estimated 2.1% in 2020. It is estimated that CPI inflation will stay below 2.0% y-o-y in 2021, implying neither disinflation nor inflation risk
Thanks for China’s relatively moderate stimulus to cope with the pandemic which reduces the need for deleveraging in 2021. An elevated current account surplus, a strong RMB and low inflation build up the solid base to deal with financial risks
If China is not hit by a serious second wave of COVID-19, a modest slowdown approach may be used in credit growth. China will target to contain the rise in interest rates and funding costs to sustain the growth recovery.
Due to Covid-19, the life science industry is booming in 2020 and will continue this trend in 2021 especially biotech industry. Internet hospital and healthcare industry would also be developed under China’s strategy. The trade restriction and tension set by Trump Government may be eased in 2021. However, high tech export restriction and punishment on semiconductor chip may push China to develop its own semiconductor chip industry and put more resource on basic research to diminish the reliance on the technology importation. Clean energy industry could also be booming to ensure China’s fulfillment to the obligation to Paris Agreement.
India:
India could well be the fastest-growing Asian economy in calendar year 2021 (CY21) if Nomura’s forecasts are to be believed. The foreign research and brokerage house expects the Indian economy – as measured by gross domestic product (GDP) – to grow at 9.9 per cent in 2021, eclipsing China (2021 GDP growth pegged at 9 per cent) and Singapore (at 7.5 per cent) during this period.
At a macro level, Nomura expects global growth to pick up from negative 3.7 per cent in 2020 to 5.6 per cent in 2021, with growth in H1-2021 averaging around 7.8 per cent y-o-y (owing to base effect). It expects inflation to average at around 5.5 per cent in H1-2021, before easing to 4.1 per cent in the second half.
Key risks
The fastest-growing tag in 2021, however, will come with its own challenges. A key concern in 2021 and beyond, Nomura said, is the implication of the K-shaped recovery seen till now. A slower pace of recovery in the informal sector, according to them, implies the cyclical recovery maybe a jobless recovery and can lead to lower per-capita income, higher inequality, pressure for more populist spending by the Government and social tensions.
A rise in infection cases due to crowding during recent festivals; fading of pent-up demand after the initial reflex; fiscal drag from expenditure compression in Q1, as the Government struggles to keep the deficit under control; and weaker growth in Europe and the US due to the pandemic are the four risks it cites that could trigger a slowdown in economic growth going ahead.
According to Moody’s Investor Service India’s rated nonfinancial companies are predicted to have a “stable” outlook in 2021. Companies would see their earnings grow as demand starts to recover, following a sharp drop over the last two quarters. A structural shift in consumption patterns would support demand growth over the next 12 to 18 months.
Moody’s Prediction
Oil and gas: Margins and business conditions in this sector will be more subdued than before the pandemic began.
Telecommunications: The sector’s profitability has rebounded due to tariff hikes that increased average revenue per user, according to Moody’s. 5G spectrum auction prices are likely to be expensive
Automobile manufacturers and suppliers: Auto sales are expected to modestly increase in 2021 and beyond based on pent-up demand as well as fresh demand for entry-level vehicles since consumers are likely to focus on safe distancing.
Steel: Steel production is set to resume gradually following the national lockdown. Consumption is predicted to rise by a “low-single-digit percentage” in fiscal year 2022.
Mining: The ratings agency predicted a stable global industry outlook for the mining sector would reflect better business conditions and rising production levels that would improve profitability among Indian companies.
RBI Outlook
RBI predicts Indian economy has stopped shrinking in the October-December quarter projecting a GDP growth of 0.1 per cent in Q3 and 0.7 per cent in Q4 January-March of 2021. The central bank also revised its estimate for economic contraction during FY21 to 7.5 per cent from the earlier assessment on 9.5 per cent. The central bank, however, cautioned that the positive assessment depends a great deal on the spread of coronavirus in coming days and progress on vaccine development front.
The Reserve Bank of India has also been careful about cutting its policy rate, especially as higher inflation has pushed real rates to exceptionally low levels.
Market size
India’s GDP (at constant 2011-12 prices) was estimated at Rs 26.9 trillion (US$ 363.49 billion) for the first quarter of FY2020-21, against Rs 35.35 trillion (US$ 477.67 billion) in the first quarter of FY2019-20, showing a contraction of 23.9%, compared with 5.2% growth in the first quarter of FY2019-20.
India is the fourth-largest unicorn base in the world with over 21 unicorns collectively valued at US$ 73.2 billion, as per the Hurun Global Unicorn List. By 2025, India is expected to have ~100 unicorns by 2025 and will create ~1.1 million direct jobs according to the Nasscom-Zinnov report ‘Indian Tech Start-up’.
India's foreign exchange reserve was Rs 39 .64 trillion (US$ 542.01 billion) in the week up to September 4, 2020 according to data from the RBI.
Government Initiatives
The first Union Budget of the third decade of 21st century was presented by Minister for Finance & Corporate Affairs, Ms Nirmala Sitharaman in the Parliament on February 1, 2020. The budget aimed at energising the Indian economy through a combination of short-term, medium-term, and long-term measures. Total expenditure for 2020-21 is budgeted at Rs 37.14 trillion (US$ 531.53 billion), an increase of 13% from 2019-20 (revised budget estimates).
The Government of India, under its Make in India initiative, is trying to boost the contribution made by the manufacturing sector with an aim to take it to 25% of the GDP from the current 17%. Besides, the Government has also come up with Digital India initiative, which focuses on three core components: creation of digital infrastructure, delivering services digitally and to increase the digital literacy.
Road Ahead
India's GDP is expected to reach US$ 5 trillion by FY25 and achieve upper-middle income status on the back of digitization, globalization, favourable demographics, and reforms.
India is also focusing on renewable sources to generate energy. It is planning to achieve 40% of its energy from non-fossil sources by 2030, which is currently 30%, and have plans to increase its renewable energy capacity from to 175 gigawatt (GW) by 2022.
India is expected to be the third largest consumer economy as its consumption may triple to US$ 4 trillion by 2025, owing to shift in consumer behaviour and expenditure pattern, according to a Boston Consulting Group (BCG) report.
India is expected to attract investment of around US$ 100 billion in developing the oil and gas infrastructure during 2019-23.
New Zealand:
It is noticeably clear from discussions both business and personal that 2020 is a year that many people will be quite keen to put behind them. There is no doubt that it has been a challenging year for everyone, but it is also a year where the New Zealand economy has shown resilience in the face of one of the biggest shocks in modern history.
The latest forecasts have the economy ending 2020 3% smaller than it finished 2019 which is a fantastic result given the situation the country has been through. New Zealand has just released the GDP figures for Q3 of 2020 which showed an increase in 14% off the back of an equally record-setting 11.0% decline in activity in Q2. The great news is that by the end of the September quarter, activity in the New Zealand economy had surpassed pre-Covid levels. Six months ago, it was predicted it would take until 2023 to achieve this.
This outcome reflects the sheer degree of support the economy has received, the relatively quick exit from lockdown, and the readiness that people have reached for their wallets or tapped out transactions on their phones. Fear of losing jobs has quickly given way to fear of missing out on a bargain or some fun.
Tourism
New Zealand’s biggest revenue earner pre Covid-19 was the Tourism sector. This took a massive hit when the New Zealand border closed in late March 2020. New modelling shows that while domestic tourism is unlikely to completely fill the gap left by international visitors, it will help to partially sustain the sector while it recovers to pre-Covid-19 levels over the next two to three years.
Based on modelling undertaken by Tourism New Zealand, the biggest opportunities and risks for the tourism sector’s recovery over the next few years are:
Trans-Tasman (New Zealand/Australia) border re-opening – there is a potential window for this to occur by March 2021 however this will depend on bilateral health outcomes and trade negotiations. There are also travel bubbles being discussed with Rarotonga and Niue.
Rest of world borders re-opening, which will also depend on global health outcomes and trade negotiations
Demand pacing, consumer confidence and strength of ‘pacing’ or demand uptake in the months that follow domestic alert levels and/or international border re-openings
Businesses ability to survive, pivot and compete for a bigger share of Kiwi consumers’ holiday spend, converting outbound holiday spend into domestic tourism value
Transport
Freight is still reaching New Zealand ports and our primary produce is being loaded for export markets. Coastal shipping is still operating as normal. China is coming back on line with all ports operating and controls over people movements being reduced. Food is being provided priority clearance in China, however there is uncertainty with respect to markets where Covid-19 is starting to take hold and borders are being closed. New Zealand relies on exports for GDP and the impact of less air freight options is certainly challenging to our export sector.
In General
Locally, the debate has quickly turned to the strength of the New Zealand housing market, which is helping to tow consumer spending along, and whether or not interest rates will or should go lower. Households don’t need even lower interest rates to encourage them to spend more money and buy houses at present – they have jumped the starter’s gun on that one (an increase in house values year on year of 25% is generally being seen).
According to one large New Zealand Bank, they no longer see a negative Official Cash Rate as necessary, given the strong household response to date to low interest rates as well as the roll-out of the Reserve Bank of New Zealand’s Funding for Lending Programme (FLP). The FLP will help to keep a lid on bank funding costs, though against a backdrop of recent rebounds in wholesale interest rates as the hot housing market and the increasingly level of government concern about housing get digested. The silver lining is: it’s better to see the economy responding to low interest rates than not – that would be a much bigger problem to cope with.
The job market continues to be indifferent depending on which city you reside in. Wellington, the capital city and home to Government has had a roller coaster but overall a positive year, however the same cannot be said for other cities. Big hits continue to occur in Auckland (New Zealand’s largest city) and Christchurch, and it will take them longer to try and return to a new norm. Expectations are that the latter two will bounce back eventually, however the pressure may come on Government to cut spending to commence repayment of what has been significant handouts in 2020 because of Covid-19 which could potentially impact the Wellington market.
Singapore:
Singapore will be moving into Phase 3 reopening on Dec 28th, 2020. This was the news many Singaporeans and businesses were eagerly anticipating moving into 2021.
While Singapore is still a recession and economists suggesting that the economy may contract by as much as 5%, the Singapore Government has pledged to support businesses and citizens through to June 2021 with various grants to soften the impact of Covid-19 and help them recover in 2021.
On the employment front, the Singapore Government has proactively worked with the private sector to create job opportunities for Singaporeans who were retrenched. This has kept the unemployment numbers down to near pre COVID-19 levels.
Sectors such as tourism and air travel will continue to lag going into 2021 as the rest of the region struggle to contain the pandemic. The construction sector continues to be marred by delays due to construction labour crunch and shortage in materials.
We will continue to see investments in advanced technologies R&D such as AI, ICT and big data. With companies such as Hyundai Motor Group, Zoom, Tencent, Infineon committing to making Singapore a strategic innovation hub for their businesses.
Other sectors such as Lifesciences, Pharmaceutical, Logistics have enjoyed sustained growth in 2020 and will continue well into 2021. Singapore is proactively taking steps to restart business travel with other countries through various air bubble initiatives and easing travel restrictions as the vaccine is being rolled out.