Financial stresses a potential drag on asian economic prospects

Financial stresses a potential drag on asian economic prospects

  • The recent financial market turbulence is the product of a new asset pricing regime resulting from tightened monetary conditions. As investors and businesses reposition themselves in this new regime, there will be more such episodes of stress.
  • Asian resilience has held up admirably to date, with an external slump compensated by strength in domestic spending. A fuller recovery of tourism provides further upside.
  • Preliminary PMI figures for advanced markets show that short-term reactions in real economic activity have been muted; Business optimism is still holding up.
  • Even if the banking difficulties are successfully defused, shifts in sentiment and positions will have consequences for Asian capital spending, currencies, and trade.
  • We ultimately expect economic resilience in Asia to persist, with the lessons learnt from prior crises being put to good use.

Thai general elections a potential turning point?

  • Elections are slated for mid-May, the second since the 2014 coup d’état. The once anti- establishment Pheu Thai party is leading in voter surveys. Pro-establishment parties Palang Pracharath and the Democrats are on the backfoot
  • The most likely outcome is that Pheu Thai wins a plurality of parliamentary seats, and forms a coalition with pro-establishment parties which then works to resolve some of the deep divisions that have produced a series of crises since 2004.
  • Thailand thus has a chance to leave behind a decade of political paralysis. But even with that, daunting economic challenges await the new government.

Regional updates

  • Taiwan’s sagging manufacturing and robust retail sales paint a picture of a two-track economy as the central bank pushes ahead with a rate hike despite easing inflation.
  • Malaysia’s inflation ticks down marginally, while a leading indicator turns downwards.
  • Singapore’s growth-inflation tradeoffs have become more unfavourable amidst weakening industrial production. The odds of a monetary pause have increased.

Read more: CAA-Weekly-27-march-2023.pdf