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Oil price rally begins to hurt Asia Premature to call another commodity super-cycle


Highlights from the CAA Weekly Table:

Asian political risks:

  • Little should be expected from this Thursday’s first high-level talks between the US and China since President Biden took over. Note how last week’s summit meeting of the US-led Quad edges it towards becoming an anti-China front. At best, a road map for more talks might be laid out, one that might eventually produce a new equilibrium in their relationship.
  • China’s imposition of a new electoral law in Hong Kong strengthens its grip on the city. But there is a silver lining in that it is now more likely that necessary social and economic reforms in Hong Kong might actually get done.

Asian economies: 

  • China: We see modest upside risks to our growth forecasts off the back of a better export performance in coming months and a reduced likelihood that fixed asset investment might tail off as quickly as we had earlier anticipated. Monetary policy will remain accommodative.
  • Our nowcast estimates for GDP in Indonesia and the Philippines show their economic recoveries faltering while India’s upturn could also lose momentum. However, India and Indonesia show further commitment to supply side reforms.

Oil price rally begins to hurt Asia

  • OPEC’s extension of output cuts should allow oil prices to rise above USD70. This will start to hurt Asian economies through 3 channels – growth, inflation and external accounts:
  • Economic growth in Singapore and Hong Kong are most at risk.
  • India is where an inflationary impact might do more damage.
  • Indonesia, India and the Philippines could suffer wider external imbalances, more so when economic activity revives and the infrastructural agenda is back on track.

Premature to call another commodity super-cycle

  • The release of pent-up demand in 2H21 will support commodity prices as soaring demand meets capacity constraints. However, it is premature to call for another broad-based commodity super-cycle since we are not likely to see a replication of the massive surge in demand that China exerted in the early 2000s.
  • A surge in infrastructure spending led by President Biden’s plans for the US could produce a more bullish picture.

Baseline View: Winners and Losers from Rising Commodity Prices


Bullish commodity: CPO, Rubber, Nickel, Copper, Coffee

2.6% of GDP

Balanced commodity: Coal

1.6% of GDP


Bullish commodity: CPO, Rubber

2.9% of GDP


Bullish commodity: Rubber, Rice

1.4% of GDP


Bullish commodity: Rubber, Rice, Coffee

3.0% of GDP

The Philippines

Bullish commodity: Copper, Nickel

0.4% of GDP


Bullish commodities: Rice

0.2% of GDP

Strong upside in global demand likely, with Asian exporters the main winners; Thailand: Downgrading our forecasts on sluggish economic momentum


Highlights from the CAA Weekly Table:

  • Asian political risks: We see the violence in Myanmar escalating, which will have broad regional ramifications. Thai protestors are taking their cue from Myanmar and provoking the military-dominated government there. ASEAN will also be left in a more awkward strategic position. Separately, the risk of more turbulence in Malaysia is growing.
  • Asian economies: India’s growth in 4Q20 surprised positively but some of the details raise questions about the quality of the upturn, which will still depend heavily on herd immunity developing. Further movement on reforms in Indonesia gives us confidence that its economy is poised to accelerate sustainably. Singapore’s economy continues to rebound well but the upturn is narrowly based, depending heavily on manufacturing and finance. Hong Kong’s budget will support the economy in the short term but there did not seem to be much there to help the economy build back better for the longer term.

Strong upside in global demand likely, with Asian exporters the main winners

  • Near term financial market risks can be managed, paving the way for a confluence of factors to generate a strong upturn in global demand for Asian economies.
  • We see the drag from the pandemic dissipating rapidly – fears over new variants are overstated. We also expect capital spending to rebound vigorously as business confidence improves. Moreover, rising commodity prices will add further to Asian momentum.
  • The lead indicators we follow provide support for this view: the OECD composite lead indicators are rising and in a broad-based manner. Our lead indicator for export demand in Asia is also pointing to a sharp upturn.
  • Within Asia, China, Singapore and Taiwan lead the pack in terms of their gearing to the upside in capital spending that we foresee. Thailand, the Philippines and India appear likely to benefit the least relatively from this upside.
  • However, there are potential downside risks from a stronger than expected global upturn. A key concern is the ramifications for Asian currencies – suggests the Indonesian Rupiah, the Philippine Peso, the Indian Rupee and the Vietnamese Dong could be most at risk.

Thailand: Downgrading our forecasts on sluggish economic momentum

  • The Thai economy is set to underperform the region for a second year in a row due to its outsized dependence on tourism revenues for growth.
  • We are also now less confident that a robust recovery in private domestic demand will take hold and employment recover strongly over the course of this year, given the continuing weakness in business sentiment – which may have been exacerbated by the political noise and uncertainty that have persisted for several months now.
  • Even with some degree of resilience among consumers and expanding fiscal largesse, the bottom line is still a significant downgrade to our forecasts for 2021 GDP growth, from our original 4.0% to 3.3% now. However, we foresee growth accelerating to +5.0% in 2022 as the Thai economy makes up for lost ground.