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.

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