HSBC says South Asia will see “strong” rebound led by services this year

By Shabiya Ali Ahlam
The Hong Kong and Shanghai Banking Corporation (HSBC) yesterday expressed confidence in 2021 delivering strong and broad-based recovery for the South Asian region, albeit unlike in the previous years, the awaited bounce back would be led by services, not manufacturing.

Although a global services recovery is less supportive for Asian exports, capex could offer a cushion and inflation may prove volatile, the international bank said. Nevertheless, it expressed confidence in a broader recovery by April.

“A number of countries started the year off with a lot of challenges stemming from rising infection rates (COVID-19) but we do expect very strong growth to come through across the region, starting in the second quarter really and for the rest of the year,” said HSBC Co-Head of Asian Economics Research Frederic Neumann, addressing a virtual press conference yesterday, while discussing the outlook for the global and Asian economies and financial markets.

Noting that the vaccine rollout might take slightly longer than expected in Southeast Asia and in some of the developed markets, he said this may delay normalisation, domestic demand and tourism, which is important for the likes of Thailand and Sri Lanka.

Neumann stressed that if the vaccination programmes are not handled on time, then the region would certainly be faced with downside risks.

“But we think that generally speaking, that risk is relatively low and we sort of look forward to reasonable normalisation of domestic activity, starting the second half of the year,” he added.

Neumann pointed out that the recovery would be ‘slightly’ delayed from the activity normalisation seen in the more developed parts of Asia, Northeast Asia, Australia and New Zealand, yet HSBC is of the view that the recovery is coming through.

On a broader perspective, the research head sated that the policy rates would remain largely unchanged in 2021 but loose financial conditions and rising asset prices could trigger regulatory tightening.

HSBC projected that nations such as India, Japan, Korea, Taiwan and the Philippines will witness a growth. However, Sri Lanka is projected to record a real GDP growth of 3.5 percent (old forecast) this year and the new forecast suggests 7 percent growth.