Despite mounting headwinds, a global recession does not seem likely to stifle Asian growth

Despite mounting headwinds, a global recession does not seem likely to stifle Asian growth

  • The red-hot jobs market and rising capital goods orders in the US point to a disconnect between such bottom-up figures and the GDP advance estimates, which might well be resolved when the GDP is revised upwards. Asian exports to the US are likely to be resilient – the PMI survey indicated rising import demand in the US economy.
  • The latest PMI figures point to a sprightly recovery across ASEAN that still has legs : Domestic demand, powered by the easing of covid-related curbs and the accumulation of excess savings will help offset the likely deceleration in global demand.
  • There are two key risks 1) China’s economic woes that predate Covid-19 and are therefore likely to persist in the medium- and long-term, and 2) mis-calibrated tightening by central banks that slows growth much more than intended.

Singapore: In a good place cyclically, but structural challenges lie ahead

  • The latest GDP and labour market data confirm that Singapore’s cyclical prospects remain
    strong. Although external demand is likely to slow, the rebound in sectors badly hit by covid
    is firming. Foreign investment in manufacturing and the integrated resorts sectors will be
    robust. The finance sector is benefiting from relocation from Hong Kong.
  • But there are three structural challenges that need to be tackled. First, productivity growth
    has been persistently weak. Second, the large external surpluses reflect excessive savings
    in the economy. And, third, rising home prices show a disconnect from fundamentals.
  • Policy actions to address these weaknesses are yet to be seen, and that is a concern.

What has changed recently:

  • Material deterioration in the region’s risk profile: Against our expectation, US House Speaker
    Pelosi went ahead with her visit to Taiwan. China’s response in the form of massive military
    exercises around Taiwan crossed several lines not breached before. The result is that
    Taiwan’s sense of insecurity has likely deepened. China’s diplomatic reactions have also
    meant that US-China ties are at their most precarious in decades. China’s relations with
    Japan have also taken a hit.
  • There are nascent indications that inflation in Korea will peak soon , although this will not
    deter the BoK from hiking rates later in August, albeit in increments of 25bps instead.
  • Rice production could disappoint in India, necessitating a fresh round of export curbs .
    Domestic shortages are unlikely, however, given plentiful stocks which will blunt the
    likelihood of stirring food prices just as inflation is becoming more sticky and inertial.
  • 2Q22 GDP growth surprised positively in Indonesia, thanks to the tailwind from commodity
    prices. But with core inflation and the Rupiah under control, there is little to suggest BI will
    move in August.
  • The Philippines is set for a blockbuster 2Q22, as our nowcast pegged growth at 8.9%.
    Lagging indicators such as credit growth and lending standards, point to a buoyant recovery.

Read more: CAA-Weekly-8-Aug-22.pdf