Emerging Asia – moving ahead despite the headwinds

Emerging Asia – moving ahead despite the headwinds

There are several reasons why we think that emerging Asia’s recovery from the pandemic will continue despite the growing worries about a US recession.

  • First, our baseline view is that the US will avoid a recession and that capital spending there – which has a strong influence on Asian exports – can grow.
  • Second, we see China recovering in 2023 and adding to Asian export demand.
  • Third, commodity prices are likely to continue supporting several Asian economies.
  • Finally, there are structural forces which will help promote investment into Asia – supply chain reconfiguration, reforms that improve the appeal to investors and infrastructure spending.

What has changed recently:

  • China: There are more signs that the worst is over for the economy. But the economic recovery will be constrained by weak demand conditions – with small enterprises remaining under pressure, labour market conditions still parlous and the uptick in covid infections in the eastern region rattling consumers. Encouragingly, stimulus is being ramped up and there are signs that infrastructure spending will be a bright spot for the economy.
  • Monsoon rains in India continue to disappoint: Consequently, farmers have held back on planting the summer crop. This raises the risk of a further growth slowdown and pronounced food inflation.
  • Inflation in Indonesia has breached the upper-end of the central bank’s target corridor (2%-4%), but the explicit guidance from the central bank suggests it is still not in a rush to tighten, despite burning through 8% of its reserves through spot intervention through May this year.
  • Korea is seeing a particularly pronounced slowdown in external demand. But it is not all doom-and-gloom, as domestic demand will do more of the heavy lifting in 2H22. Watch for the upcoming inflation print that could trigger a 50bps rate hike from the BoK in mid-July.
  • Singapore’s next leader to lead public consultation exercise : The launch of the “Forward Singapore” exercise provides an opportunity for Deputy Prime Minster Lawrence Wong, the anointed successor to Prime Minister Lee to raise his profile. The policy priorities of the next generation of leaders can be gleaned from the exercise and it reinforces DPM Wong’s leadership style of consensus building.
  • Thailand – a mixed performance: Despite record-high inflation, an improving labour market and higher farm incomes are supporting domestic demand. A rapidly recovering tourism sector is giving the economy another leg-up. However, export demand is cooling, and the Bank of Thailand’s accommodative monetary policy is beginning to rattle foreign investors.
  • Vietnam: With the re-opening of borders and the easing of Covid-19 restrictions, the economy is firing on all cylinders. The key risk at hand is an over-heating of the economy that further fans inflationary pressures.

Read more: CAA-Weekly-4-Jul-22.pdf