A populist turn in Asian policy making? India: Farmers’ protests could complicate any future reform agenda; Singapore: Sizable labour market slack likely despite growth rebound

Highlights from the CAA Weekly Table: what has changed?

• Geopolitical risks: US-China ties are off to a rocky start, with Taiwan a flashpoint. Chinese air force intrusions into Taiwan’s airspace have forced the Biden Administration to make an early and forceful commitment to Taiwan’s defence. Expect several months where each side tests each other, creating episodic tensions but probably nothing more serious.
• Asian economies: Global demand for the region’s exports remains intact despite new waves of virus outbreaks around the globe. As we warned, lockdowns were extended in Malaysia and Indonesia, whose central banks are likely to cut rates soon despite holding off in January. Indonesia’s reform agenda appears to be gaining traction: bureaucratic reforms are now expected, in addition to improved conditions for foreign investors announced earlier. Bumper investment commitments will burnish Singapore’s medium-term outlook.

A populist turn in Asian policy-making?

• Elements of policy changes in Asia that reeked of populism have raised eyebrows. It is in China where such moves have aroused the greatest concerns, such as the crackdown on the near-monopolisation of online payment system by such fintech behemoths as Ant Financial.
• A growing backlash against big tech is evident elsewhere too. Korean leaders are talking about getting platform companies to share profits with mom-and-pop stores. In Southeast Asia, there is growing traction for digital taxation as governments eye a share of the spoils from irreversible digitisation.
• The trend will intensify: Policymakers fear an overly light-touch regulation of fintech will foster financial instability. Policymakers are also uncomfortable about the growing market and political power of big tech companies and are more conscious of the need to demonstrate that they are acting to address widening inequality.

India: Farmers’ protests could complicate any future reform agenda

• The pushback against agrarian reforms is a symptom of a broader problem. The ruling BJP party was clearly caught off-guard by the tenacity of the farmers, which has upset their earlier calculation that the protests would fizzle out.
• The government is now dithering on its response. It offered to suspend the reforms, only to walk back from its initial promise. This sets a poor precedent for future reforms.
• Even Premier Modi’s stratospheric popularity has failed to calm tensions. This dearth of trust in the political class will plague future efforts to obtain popular buy-in for reforms.

Singapore: Sizable labour market slack despite growth rebound

• We studied the historical relationship between output and unemployment (Okun’s law) in the Singapore context to forecast labour market outcomes in 2021.
• Our estimates imply that the labour market would have avoided a “cliff” effect upon the expiration of policy support measures in the second quarter – a key downside risk that we had flagged early on. However, our forecasts still imply significant slack in the labour market by the end 2021 consistent with a modestly large negative output gap, that will pose headwinds to consumer spending for some time.

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