From rocky relations with China following the eruption of the COVID-19 pandemic, to the 1.9 trillion dollar stimulus checks, the country has been at the top of every headline about economics. Now it’s showing up on the headlines for a different reason: inflation.
The Year of 2020
2020 has undoubtedly been a turbulent year. The COVID-19 pandemic has brought about socio-economic detriment of almost unprecedented magnitude and geographical reach. Aside from this, geopolitics, trade wars, social justice and environmental rights issues have made 2020 a year for the history books for consumers, businesses and States alike.
In this article, we will explore the 2021 financial predictions for Asia, exploring trends that have emerged throughout this year and the potential areas and methods of growth businesses will explore. It should come as no surprise that the pandemic will be the main recurring theme, and while the outlook will vary depending on the country, States will have to adopt long-term policies to prevent further damage and enable stronger recovery. Firms will have to demonstrate greater commitment to customers and employees, balancing purpose and profit, in order to maintain and expand their businesses. Technology and cybersecurity will also be significant focal points of 2021, due in part to the increase in use of work-from-home technologies.
COVID-19 and State Response
The damage caused by COVID-19 has caused “significant scarring” and will continue to be felt for the foreseeable future. According to the International Monetary Fund, the overall economic activity of Asia is expected to contract by -2.2% in 2020 but experience a growth of 6.9% in 2021. There is general consensus that since the Asia Pacific region was affected by the pandemic first, it will also be the first to recover. The IMF predicts that this recovery will be tentative, however, and will vary depending on the infection rate and ability of the country to implement effective policy responses. Contraction is anticipated to be greater in regions like India and the Philippines, but the Chinese economy is expected to experience positive growth of 8.2%, albeit a lower figure than predicted by the IMF earlier in 2020.
Recovery from contraction will very much depend on the ability of the specific region to control infection rates and implement effective policies. Statistics from the IMF Policy Tracker show that many Asian governments have already put fiscal policy measures in place to mitigate the impact of the pandemic on more vulnerable groups. Overall, the trend has been that policies targeting areas where needs are most urgent have been effective in reducing adverse COVID-19 related consequences and have been key to promoting economic activity.
The IMF and the World Bank have recommended government policies that should be given serious consideration to lift economies from decline. Governments that have provided fiscal and financial assistance should continue this support to ensure sustained recovery, but consider doing so according to an objective criteria based on future potential to prevent unnecessary prolongation. Countries also need to widen social protection for the most vulnerable citizens who have experienced undue hardship. The pandemic has caused existing wealth gaps to deepen, and low-income groups have borne the brunt of its negative economic consequences. Governments should also identify credit risks to businesses and households to prevent another financial crash. Finally, overall structural change is necessary to ensure future viability.
Firms and the Next Steps
Research has shown a positive correlation between firms’ demonstrations of “integrity, competence and transparency” and their relationships with their customers. The 2020 Forrester Report recommends that firms explicitly strengthen their commitment to their customers, issues that their customers are passionate about, and their employees in order to retain and expand their existing customer base. Forrester predicts that expenditure on retention marketing will increase by 30% in 2021, and firms with a focus of providing value on top of profits to their customers and shifting from offering nonessential to essential services will be perceived as more relevant.
Firms will also face a need to place greater emphasis on employee experience. Firms will need to invest in employees in order to “attract, develop and retain” talent, and those that do so will gain a competitive edge and foster a more collaborative community to adapt and respond to economic changes and challenges. Studies have shown that workplace engagement has experienced a decline throughout the pandemic, thus firms must be able to empower employees and guide them towards maximum output. With 2020 being a significantly difficult year for employees to remain motivated both to work and to work with their firms, businesses must demonstrate humanity to inspire their people to power through challenges still to come.
The pandemic has caused a substantial percentage of the workforce to shift their operations from the office to their homes, which has required swift implementation of complex programmes to allow effective transitioning. However, reliance on work-from-home systems has caused an exponential increase in cases of cybersecurity breaches and issues of data protection and privacy. To combat this issue, firms are expected to invest heavily in cybersecurity software to prevent further risks to their remote operations.
According to Forrester, “APAC is entering a decade… in which firms in the region will be on par with or even exceed the rest of the world in terms of technology-driven business model innovation”. Firms will have to accelerate their rate of interaction with technology to ensure that they are equipped to face more long-term challenges of COVID-19 and remain innovative and resilient. Platforms will be emerging all across the region, and existing giants like Alibaba in China and Grab in Southeast Asia should prepare for competition in order to retain control of their existing customer base and for the possibility of expansion.
5G has also been a major subject of discussion in 2020, but has yet to make an actual mark outside of Chinese markets, in which there has been heavy State support and implementation. 5G-related business models are anticipated to emerge starting in China to the rest of Southeast Asia from 2021 to 2022, and it is likely that APAC businesses will pay attention to the emergence of 5G and the continued strategies employed to promote it. Forrester predicts that with the increase in cybersecurity breaches in 2020, 30% of firms will increase their expenditure on cloud, security and risk and other software to promote cross-firm collaboration on accountability. With workplaces experiencing an overnight change, almost half of APAC businesses anticipate certain employees to work remotely on a permanent and full-time basis. As such, it is predicted that companies will sharpen their focus on implementing workplace AI, and the public cloud infrastructure will grow by 35% to USD $120 billion in 2021.
The Year of 2021
2020 has been a difficult year for all market actors, from the individual to businesses to the State. The sudden and widespread challenges brought along by the pandemic have completely transformed global and regional markets. Asia, the first region to feel the blows of the pandemic, has looked down the barrel of the COVID-19 gun to learn that the only way to survive is through adapting, innovating, and exhibiting creative resourcefulness – harnessing the potential of existing tools and making sound, well-informed investments in new ones.
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