Emerging Asia

Emerging Asia Chart Book

Emerging Asia Chart Book

South East Asia bouncing back

The near-term outlook for South East Asia has improved dramatically over the past month or so. Daily cases of COVID-19 have collapsed and are now less than one-third of the level they were at in August. With vaccination rollouts also making good progress – almost 30% of the region’s population is now fully vaccinated – governments have begun easing restrictions. Our Mobility Trackers have rebounded strongly, and in the case of Indonesia and the Philippines are now at their highest level since the start of the pandemic. Although the Q3 data due to be published over the coming weeks will likely paint an ugly picture, growth should rebound strongly at the final quarter. Given the improving outlook, we have taken out the rate cuts that we had originally pencilled in for Thailand and the Philippines. That said, with inflation still low, rate hikes are still some way off. Finally, with factories being reopened, industrial production is also starting to recover, which should also help ease some of the supply shortages which are hobbling the world economy.

27 October 2021

Emerging Asia Chart Book

Asian central banks in little rush to raise rates

Over the past month or so, the central banks of Korea, Pakistan and Sri Lanka have all raised interest rates, but we don’t think other countries will be in any rush to follow suit. There is certainly little to worry about on the inflation front. Pakistan, India and Sri Lanka are the only three countries where headline inflation is above 5% y/y. With GDP still well below potential in most parts of the region, underlying price pressures will remain subdued. Similarly, with the exception of Sri Lanka and Pakistan, where large current account deficits are putting downward pressure on currencies, external factors are unlikely to prompt central banks into hiking rates. Although the US Fed is likely to announce plans to taper its asset purchases later this year, large current account surpluses mean Asian economies are well placed to withstand any sudden shift in capital flows that tighter monetary policy in the US could trigger. Meanwhile, unlike in Korea, there is no sign elsewhere in Asia that low interest rates are fuelling a rise in financial risks. Credit growth has slowed in many countries, with policymakers in Indonesia and the Philippines encouraging commercial banks to lend more. Finally, most countries still have large output gaps, and with the virus continuing to cause significant economic disruption across the region, central banks will remain keen to support economic activity.

29 September 2021

Emerging Asia Chart Book

Exports won’t come to the rescue in H2

  • Q2 GDP data released over the past month or so did not show a repeat of the across-the-board rises in exports seen in previous quarters, but the external sector still proved an important prop to GDP in many places. Thailand’s economy unexpectedly grew last quarter, as an increase in goods exports more than made up for a slump in domestic demand. Strong external demand also went a long way in offsetting sharp falls in private consumption in Taiwan and Malaysia. However, this is unlikely to continue. Recent monthly trade data show that merchandise exports have started to level off. And with high virus cases and strict containment measures weighing heavily on domestic demand across large parts of the region, we have pencilled in large falls in GDP for Thailand, Indonesia and Vietnam this quarter. The poor outlook means monetary policy is likely to be loosened further. We think the Bank of Thailand will cut rates by 25bps in September. The central bank in the Philippines is also likely to loosen policy next month. While we don’t have cuts pencilled in elsewhere, there is a growing chance that other central banks will follow suit.

31 August 2021
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Singapore: moving beyond zero-COVID

In a bold move that will be closely watched across the region, Singapore is set to drop its implicit target of pursuing zero local COVID-19 cases, with restrictions set to be eased gradually from August. In other words, Singapore will learn to live with the disease. While some restrictions will remain in place, especially for those who have not been vaccinated, the shift in policy will involve accepting a higher level of cases, hospitalisations and deaths from the virus. The aim is to stop the merry-go-round of the past couple of months of tightening and loosening containment measures every time cases rise and fall. The government is also hoping to allow quarantine-free inbound travel, beginning in September. Currently Singapore has some of the tightest border restrictions in the world, which have been weighing heavily on sectors such as tourism and business services. Essential to these plans is achieving widespread vaccination – the city state has already fully vaccinated nearly 55% of its population and aims to hit 80% by September. Other countries currently pursing zero-COVID strategies, such as China, Hong Kong, Australia, and Taiwan, will be keeping a keen eye on Singapore’s progress. Although the slower pace of their vaccine rollouts mean it is likely to be at least a few months until they are in position to follow suit.

Emerging Asia Chart Book

Virus disruption to continue

The virus situation in Emerging Asia has improved compared with a month ago. Although cases are rising sharply in Indonesia, daily numbers have come down in Taiwan, Singapore, India and Malaysia, and appear to have stabilised in the Philippines. That said, the situation remains serious. The more contagious Delta variant now appears prevalent across the region, which suggests countries will need to be cautious about how quickly they loosen restrictions. And while vaccine rollouts have gathered pace in a number of countries, it is only in Singapore, China, Hong Kong and Cambodia where more than 10% of the population is fully vaccinated. The upshot is that whereas life appears to be returning to normal in the US and most of Europe, COVID-19 will continue to cause significant economic disruption throughout this year across large parts of Emerging Asia.

Emerging Asia Chart Book

Locking down

The economic outlook for much of Emerging Asia has deteriorated in recent weeks in response to a sudden jump in COVID-19 infections. Daily cases are surging in Thailand and Malaysia, and while the overall numbers remain low, Taiwan, Singapore and Vietnam have also reported a big rise in daily infections. Most countries in the region have reintroduced restrictions to slow the spread of the virus, and the high-frequency data suggest that mobility has fallen sharply. As we outlined in a recent Update, hospitality and recreation are being hit hardest by the new restrictions, while hopes for a swift recovery in tourism sectors have taken a further blow. But other parts of the economy should hold up relatively well. A jump in online sales has helped to compensate for a drop in sales in physical shops. Meanwhile, with factories being allowed to remain open, industrial production should continue to expand at a decent pace, helped by strong demand for the region’s exports. Governments have so far responded with more stimulus measures to support economies through the lockdowns, and while we don’t expect any further interest rate cuts, the recent deterioration in the outlook reinforces our view that rates will remain low across the region for some time to come.

Emerging Asia Chart Book

Thailand: from bad to worse

A jump in new virus cases in Thailand is already showing signs of holding back the recovery and could jeopardise plans to reopen the crucial tourist sector. Despite its initial success in containing COVID-19 – there have so far been fewer than 200 deaths from the disease – Thailand is now experiencing a major outbreak. The country has reported an average of nearly 2,000 daily cases over the past week. To contain the spread, the government has announced the closure of schools, bars and other entertainment venues. These restrictions have led to a sharp drop in our Mobility Tracker and are likely to weigh heavily on consumer spending over the coming months. The outbreak could also cause the government to put on hold plans to reopen the tourism sector. The authorities had been hoping to welcome fully vaccinated foreign tourists to the island of Phuket (which before the crisis attracted 14% of international visitors) without a mandatory quarantine period, starting in July. In our latest quarterly Outlook, we lowered our GDP growth forecast for Thailand for this year to just 3.0%. The worsening outlook reinforces our view that monetary policy will remain supportive for some time to come. Our forecast is that the policy rate will remain unchanged at its record low of 0.5% until the end of 2023.

28 April 2021

Emerging Asia Chart Book

Situation in the Philippines looking increasingly dire

The economic outlook in the Philippines has gone from bad to worse over the past month. The main headwind is a renewed surge in virus infections, with the country now reporting around 10,000 new cases of COVID-19 each day. Metro Manila, which accounts for 40% of GDP, has been placed under a strict lockdown for a week. Even before the latest surge in cases, there were signs of the recovery going into reverse.  The first monthly edition of the Labour Force Survey showed that the unemployment rate crept up from 8.7% in January to 8.8% in February, compared with just 4.6% before the crisis. High inflation, which reached 4.7% y/y last month, is also starting to eat into the purchasing power of consumers. Fiscal policy is unlikely to plug the gap – spending remained lacklustre in January and February. The country’s slow vaccination rollout will further hold back the recovery. Less than 1% of the population has so far been inoculated. By the end of the year, we think GDP will still be 12% below its pre-crisis trend, which is the biggest gap of any country in the region.

31 March 2021
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