Oil prices and inflation, zero-COVID holdouts

The main channel through which Asia will be affected by the crisis in Ukraine is higher oil prices. We are sticking with our non-consensus view that most countries in Asia will leave interest rates on hold this year to support recoveries. But with energy price inflation likely to remain higher for longer, the risks are now clearly to the upside. Meanwhile, although most countries in Asia have now adapted to living with the virus, Hong Kong, Taiwan and China are sticking with their zero-COVID strategies. Taiwan and China still appear to be defying predictions that Omicron would escape their existing controls and require tighter restrictions. But with virus cases surging in Hong Kong, the economic outlook for the territory has deteriorated sharply in recent weeks and we have recently cut our GDP forecast for this year.