Asian resilience in a changed global environment

Asian resilience in a changed global environment

Two downside risks confront the global economy, with implications for Asia. The Ukraine crisis and the subsequent surge in energy and food costs is one. The other is that China is now likely to suffer a surge in covid infections that will slow its economy and hurt global growth.

• We present scenarios for the impact of each of these risks on global economic growth. In our baseline scenario, global growth suffers a hit in 2Q22, after which economic activity recovers a degree of momentum. Overall, we find that global growth diminishes moderately in 2022. The surge in inflation peaks in 2Q22, then eases.
• There are a number of factors that mitigate the slowdown – energy intensity of the global economy has declined by half since the major oil shocks of the 1970s, for example.
• The most powerful mitigating force, however, is the easing of the pandemic in most of the world outside China. This unleashes pent-up demand, the impact of which is reinforced by the massive pile of excess savings in the world. We also see cross-border travel resuming with a vengeance, boosting prospects for tourism to recover smartly – which would be of particular benefit to the tourism-dependent economies in Southeast Asia.
• Consequently, the ex-China, the Asian economies should remain remarkably resilient in the face of these shocks. In most cases, we cut our 2022 growth forecasts by only 20-40 basis points.
• China, however, is likely to suffer a severe slowdown. Even with policy makers turning to stimulus, we expect growth to come down to 3.8% in our baseline scenario (from our previous forecast of 5%). In our downside scenario, China’s economy barely grows in 2022. A major consideration in this analysis is that it will take time for China’s policy response to be effective due to contradictory policy aims.

Highlights from the CAA Weekly Table – Asian political risks:

There were three key sets of elections – in Korea, India and Malaysia:

• In South Korea, the conservative candidate, Yoon Suk-yeol, was elected president with the narrowest of margins. That limited mandate, and the fact that his opponents have a strong majority in the national assembly, will constrain him from fully implementing his policies. Nevertheless, his hard line towards North Korea and China could raise political risks.
• India’s ruling BJP won 4 out of 5 state assembly elections: The BJP lost only in Punjab state where the rising AAP party demolished the once-great Congress party. A divided opposition puts Prime Minister Modi in a strong position for a third term in the 2024 general election.
• Malaysia’s ruling Barisan Nasional (BN) coalition led by UMNO won a landslide victory in the Johor state elections: BN will almost certainly call an early election around mid-year which it has a good chance of winning with a solid majority. That could provide some political stability which has been in short supply since the 2018 general election.

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