Ukraine impact on Asia, one month into the war Taking stock of commodity prices; Singapore: Policy responses to go beyond S$NEER steepening

Ukraine impact on Asia, one month into the war

On reasonable assumptions about the trajectory of the Ukraine conflict, we continue to expect a fair degree of resilience in Asian economies.

• The Ukraine war will affect Asia through two principal channels – slower European growth and higher energy prices. Our analysis suggests that the impact on Asian growth will be lower growth of between 10 and 30 basis points.
• The easing of pandemic restrictions is unfolding as we had expected. This will boost domestic demand and tourism, both of which will have powerful positive impacts on growth. The electronics cycle is holding up better than expected and should support Asian manufactured exports as well.

Taking stock of commodity prices

• We summarise the supply and demand factors in Table 1 and calculate the breakdown of the commodity output as a share of GDP and exports.

Singapore: Policy responses to go beyond S$NEER steepening

• We expect the Monetary Authority of Singapore to announce a one-off upward re-centering of the S$NEER midpoint alongside a 50-100 basis point steepening of the S$NEER slope in its monetary policy statement expected soon given the likelihood of very strong growth.
• Global tech demand remains very robust, while domestic capital spending is also set to revive, adding fuel to the foreign investment-led upturn currently underway. Travel-related, entertainment and recreational activities are also poised for a firmer recovery, as the government relaxes COVID-19 restrictions more substantially.
• In addition to the monetary policy move, also expect more macro-prudential measures to address signs of overheating in the real estate market. It is also likely that the government will hasten the return of foreign workers who have been unable to return to their jobs in Singapore because of border controls – so as to limit the surge in wage costs.

CAA Latest table of forecasts

Source: Centennial Asia Advisors. Forecasts for India are on the basis of the fiscal year ending March. Figures in parentheses refer to previous forecast. Figures in red indicate a downgrade; green signal an upgrade.