Guns, germs, and greening mean more government spending

Guns, germs, and greening mean more government spending

• Even as governments attempt to normalize fiscal policy following the massive expansions induced by the pandemic, long-run structural factors point to increased fiscal pressures.
• Asian populations are getting older and sicker, while health has risen in salience as a political issue. Government health expenditures will rise to meet this demand.
• A riskier geopolitical environment means that underinvestment in defence is no longer sustainable. A future rise in defence spending, as Europe is now experiencing, is possible.
• Climate change induces further funding needs for adaptation and mitigation measures.

Fdi into asia stages a post-pandemic comeback

• FDI inflows into Asian economies have recovered to pre-pandemic levels.
• The ongoing structural changes in the green transition and economic digitalization will make these sectors future drivers of foreign investment activity in the region.
• International business confidence in China continues to deteriorate. China’s competitors will take advantage of the resulting production relocation.
• Governments will also be seeking to improve the quality of FDI inflows to better achieve domestic policy goals such as industrial upgrading and high-value job creation.

Regional updates

• China’s reopening continues to show encouraging signs while property risks ease.
• The opening of the Chinese legislature sends mixed signals. While policymakers have emphasized supporting growth, hindrances to investment activity and sentiment remain.
• South Korea sees continued export contractions, with the semiconductors segment still facing severe difficulties. Inflation eases, supporting the case for halting rate hikes
• Indonesia sees a slight spike in inflation due to higher food inflation, but this is unlikely to change the central bank’s stance. Core inflation remains stable despite the setback.
• The Thai economy exhibits resilience as consumption and investment pick up.
• Vietnam faces an ongoing credit crunch in the property sector, even as the real economy faces setbacks. Political risks from the anti-graft campaign also loom large.

Read more: CAA-weekly-6-march-2023.pdf