New outbreaks pose downside risks to 2021 forecasts

Korea, Hong Kong, Malaysia and Thailand are all experiencing major new outbreaks of the virus, which pose a significant downside risk to our relatively upbeat GDP forecasts for these countries for 2021. The lesson from Vietnam, which experienced a big outbreak of the virus in July and August is that they can be brought under control with minimal damage to the economy provided the authorities act promptly. The success these countries had in supressing earlier outbreaks of the virus also give us hope that they will be able to contain the virus without resorting to damaging nation-wide lock downs. In the event lockdowns are introduced, it will be the service sector, especially the hospitality industry, that will be hit hardest. Retail will also feel some pain, although a switch to online shopping should help to lessen the blow. However, industrial sectors should continue to perform well. Factories would be allowed to remain open and should continue be boosted by strong sales of consumer goods, especially electronic items. Meanwhile, fiscal policy is likely to remain lose. Many countries have announced expansionary budget plans for 2021.