Commodity prices set to fall back to earth in 2H22

Commodity prices set to fall back to earth in 2H22

  • We summarise our expectations for the commodity prices that affect the region. Table 1 shows each country’s exposure to commodity prices as a share of GDP and exports.
Baseline Outlook: Winners and Losers from Rising Commodity Prices
Indonesia Bullish: Coal, CPO, Copper, Coffee 5.3% of GDP
Balanced: Rubber 0.6% of GDP
Bearish: Nickel 0.1% of GDP
Malaysia Bullish: CPO 7.0% of GDP
Balanced: Rubber 0.3% of GDP
Thailand Balanced: Rice, Rubber 1.8% of GDP
Vietnam Bullish: Coffee 0.8% of GDP
Balanced: Rice, Rubber 1.8% of GDP
The Philippines Bullish: Copper, Nickel 0.6% of GDP
India Balanced: Rice 0.3% of GDP

 China: is a perfect storm brewing?

  • High frequency data for June showed some signs of improvement but the economy continues to struggle under multiple stresses. The present malaise goes beyond zero-Covid policies.
  • The dangers are growing for the economy. Covid-19 restrictions are hurting consumer morale and undermining SMEs; local government finances are strained; real estate is under duress; and the economic slowdown is percolating into financial and social stresses.
  • Stimulus measures will be stepped up to boost the recovery in 2H22, but strained government finances and policy constraints put the effectiveness of stimulus into question.

Singapore: Growth outlook remains bright for 2022

  • Intensifying inflationary pressures led the MAS to tighten policy in an unexpected off-cycle meeting last week. Upside risks to inflation persist and more tightening is likely in October.
  • Property prices are moving up too but rising mortgage rates will help cool the sector and the government can increase land supply to temper real estate prices.
  • Singapore’s multiple growth drivers lend resilience to its outlook. But as external headwinds have grown, we have downgraded our 2022 GDP growth forecast from 4.4% to 4.0%.

What has changed recently:

  • The ruling BJP party is using the presidential elections to further bolster its position: It has nominated a candidate from a marginalised tribal community to burnish its standing among a key voting bloc in the lead-up to the 2024 general elections.
  • Central banks are erring on the side of caution: The Bank of Korea delivered an outsized 50bps rate hike, and the Philippines and Singapore tightened policy in unscheduled moves. Policy rates will likely peak in 4Q22 for economies in the late stage of the expansion.
  • In India, the spatial distribution of monsoon rains suggests that rice production will fail to outdo last year’s figures.