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Emerging Asia


Asia late to tightening but won’t have to go far

Central banks in India, the Philippines and Malaysia have all raised interest rates for the first time this cycle in recent weeks, and we expect further hikes next week in Indonesia, Korea and Pakistan. But with inflation set to fall back in the second half of the year and growth likely to weaken, tightening cycles are unlikely to be aggressive. Our forecasts are generally more dovish than the consensus.
Asia Drop-In (26th May, 0900 BST/16:00 SGT): Can Asia remain the low inflation exception? Join our 20-minute briefing about the region’s price and policy outlooks. Register here.

20 May 2022

What next for the recovery? Politics takes centre stage

Despite a surge in virus cases at the start of the year, most countries recorded decent growth in the first quarter. We expect recoveries to continue over the coming months on the back of an easing of virus restrictions and a reopening of international borders. However, new headwinds are starting to emerge. There are already signs that higher oil prices are weighing on consumer sentiment, while there are also indications that exports are losing momentum.
Emerging Asia Drop-In (26th May): Can Emerging Asia remain the global low inflation exception? Economists from our Emerging Asia team will discuss the region’s growth, inflation and policy outlooks in this special 20-minute online briefing. Register now.

13 May 2022

Manufacturing PMIs, Korea Trade (Apr.)

Regional Manufacturing PMIs point to a further worsening of industry conditions, chiming with Korean trade data which suggest a major softening of external demand. Both reinforce the view that headwinds to Asia’s export-focussed industry are mounting and that there are tougher times ahead. EM Drop-In (5th May, 10:00 EDT/15:00 BST): Join Shilan Shah for our latest monthly session on the big macro and markets stories in EMs. This month, Shilan and the team will be talking Russian gas, FX weakness and surging food prices. Register now

3 May 2022
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Tightening cycles to be gradual

Central banks across the region have recently turned more hawkish. Over the past month or so, policymakers in Korea, Taiwan, Singapore, Sri Lanka, India and Pakistan have all tightened policy. Governor Benjamin Diokno in the Philippines has also hinted that the central bank there will raise interest rates soon, and we have adjusted our interest rate forecast. We now expect the BSP to hike rates by 50bps this year. The main concern in most places is inflation, which is now above target in around half of the countries covered by our Emerging Asia services. However, while headline rates have increased in recent months, inflation across the region remains much lower than elsewhere in the world. And unlike in other parts of the global economy, we expect inflation in Asia to drop back to target by the end of the year as base effects become more favourable. This supports our view that tightening cycles will be relatively gradual compared with other regions. Our interest rate forecasts are more dovish than the consensus and what is being priced in by financial markets. EM Drop-In (5th May, 10:00 EDT/15:00 BST): Join Shilan Shah for our latest monthly session on the big macro and markets stories in EMs. This month, Shilan and the team will be talking Russian gas, FX weakness and surging food prices. Register now

New headwinds emerge

Our GDP growth forecasts are generally above the consensus, but with higher commodity prices and weaker global demand set to weigh on economic recoveries, growth across much of Emerging Asia will be slower than we had anticipated in our last Outlook. Most central banks in the region are likely to raise interest rates this year – the exceptions are parts of South East Asia and China (where we expect a rate cut). However, with growth set to slow and inflation relatively subdued, Asian central banks will tighten policy less aggressively than those elsewhere, and our interest rate forecasts are more dovish than most.

Korea GDP (Q1, provisional)

A rebound is already underway following the economic hit from Omicron, which today’s provisional Q1 GDP figures show was relatively mild. But, after an initial pick up in Q2, we expect the recovery to slow as headwinds to growth mount. That should see the central bank turn less hawkish later in the year.

Signs of exports softening, new governor at the BoK

There are growing signs that demand for the region’s exports are starting to soften. Weaker external demand will add to the headwinds facing the region’s economies, which are already being hit by the war in Ukraine and jump in global oil prices. Meanwhile, in his first public comments since becoming BoK governor on Thursday, Rhee Chang-yong acknowledged the difficult trade-off he faces between clamping down on inflation and supporting the economy. The even-handed tone of the new governor adds weight to our view that the BoK will raise interest rates no more than twice more this year.

What next for Pakistan and Sri Lanka?

Recent tumultuous events in Pakistan and Sri Lanka should eventually pave the way for IMF deals in both countries, which over time may lead to the return of economic stability. However, this is by no means guaranteed. And painful periods of austerity are likely to precede that. We are sending this Weekly one day earlier than usual because our offices are closed for Good Friday on Friday, 15th April

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