Emerging Asia

Emerging Asia Economic Outlook

Emerging Asia Economic Outlook

Central banks in no hurry to tighten

Omicron should prove no more than a small stumbling block for Asia. Our forecasts are for above-trend and above-consensus growth in most countries this year. India, Indonesia and Korea are likely to raise interest rates in 2022, but with inflationary pressures in most countries set to ease, other major economies will be in no hurry to tighten.

25 January 2022

Emerging Asia Economic Outlook

Interest rates and inflation to remain low

Growth in China will weaken further over the coming year as a downturn deepens in industry and construction. The outlook for the rest of the region is improving. We expect many economies to rebound strongly as governments ease restrictions on the back of faster vaccine rollouts and success reining in COVID outbreaks. Central banks – unlike in much of the emerging world – are in little rush to tighten. Inflation hasn’t emerged as a concern and, with large output gaps set to keep a lid on price pressures, we expect policy rates in most countries to remain on hold over the coming year. In contrast, the consensus and financial markets are expecting central banks to begin tightening in 2022.

20 October 2021

Emerging Asia Economic Outlook

Rates to remain low as virus disruption worsens

Surging infections across South East Asia and the slow progress of vaccine rollouts mean that COVID-19 will continue to cause widespread economic disruption across large parts of the region until at least the end of the year. We have cut our GDP growth forecasts for a number of countries. Interest rates in many countries are at record lows. Whereas the consensus and financial markets are expecting many central banks to start tightening policy in 2022, we think rates will remain at their current levels in most countries until at least the end of next year. Korea is an important exception. Tightening there is imminent.

20 July 2021
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Emerging Asia Economic Outlook

Resurgent infections threaten recovery

Asia’s emergence from the pandemic has been threatened recently by a resurgence in infections across parts of the region. Most of South Asia, the Philippines and Thailand have had to introduce new restrictions to contain outbreaks of the virus, and we have cut our growth forecasts for a number of countries to reflect the worsening outlook. Elsewhere, China and Taiwan have already fully recovered from the crisis, while Vietnam is not far behind. Headline y/y growth rates in these economies will be flattered by base effects over the next couple of quarters, but in q/q terms growth will continue to slow. Central banks across the region are in no rush to tighten monetary policy. External factors won’t compel policymakers to tighten, and with inflationary pressures very weak, interest rates are likely to be kept low to support economic recoveries.

Emerging Asia Economic Outlook

New outbreaks key risk to above-consensus forecasts

Our forecasts for GDP growth across Emerging Asia in 2021 are much higher than consensus expectations across the board, but fresh outbreaks in a number of countries mean the risks to our forecasts are to the downside. Korea, Malaysia, Hong Kong and Thailand have all had to introduce new restrictions in recent weeks to slow the rise in virus cases, and we recently downgraded our GDP growth forecasts for Malaysia after the government there introduced a new lockdown. The best-performing economies during the crisis have been China and Taiwan, but growth in both places will slow in q/q terms now that output gaps have closed. In the countries that have been hit worst economically, India and the Philippines, falling virus numbers and the imminent rollout of vaccines will allow restrictions to be eased further over the coming months, which should support recoveries. But GDP at the end of the year in both countries will still be well below where it would have been had the pandemic not happened.

Emerging Asia Economic Outlook

Central banks to resume easing cycles soon

With the virus under control in most of the region, Emerging Asia is bouncing back from the crisis faster than other parts of the world. But the pace of recovery is uneven. China is leading the way. In the countries hit worst economically, the Philippines and India, we estimate that GDP is still 10-15% below the pre-crisis level. For most, headwinds from high unemployment, increased bankruptcies and continued social distancing will slow recoveries over the year ahead, and output gaps are likely to persist – even by the end of next year GDP in most countries will still be around 5% below what it would have been had the pandemic not happened.

Emerging Asia Economic Outlook

A multi-speed recovery, with China leading the way

Overview Economic activity is rebounding across the region, but the speed of the recovery varies significantly by country. Daily life in China, Vietnam and Taiwan has already returned largely to normal, thanks to their early success in containing the virus. These economies will be the first to recover. At the other end of the spectrum are Indonesia, the Philippines and most of South Asia, where the number of newly reported cases is still rising. These countries are trying to reopen their economies, which has led to an initial increase in activity. But social distancing will continue for much longer and recoveries are likely to be gradual. GDP in these places will be up to 8% lower at the end of 2022 than if the crisis hadn’t happened. Countries that are heavily dependent on tourism, most notably Thailand, will also struggle. In aggregate, we think GDP in Emerging Asia will contract by 2.5% this year, before rebounding by 10% in 2021.

Emerging Asia Economic Outlook

Massive recession underway, difficult recovery ahead

With exports collapsing and countries across the region implementing draconian restrictions on travel and commerce, economic activity in Emerging Asia will contract sharply this year. Parts of South East Asia and Hong Kong are likely to be the worst affected economies. Even if the virus is eventually brought under control, weak demand and impaired balance sheets means recoveries will be gradual. Most economies are unlikely to regain their pre-crisis level of output until the middle of next year and will still be 2-4% smaller at the end of 2022 than if the crisis hadn’t happened.

15 April 2020
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