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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

Malaysia GDP (Q1)

Malaysia’s economy continued to rebound strongly at the start of this year and should grow at a decent pace throughout the rest of 2022. That said, there is still a long way for the recovery to go and we don’t think the central bank will rush its tightening cycle, which kicked off on Wednesday. EM Drop-In (17th May): Do current EM debt strains point to a repeat of the kinds of crises seen in the 1980s and 1990s? Join our special briefing on EM sovereign debt risk on Tuesday. Register now.

13 May 2022
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Bank Negara Malaysia will go slow following early hike

Bank Negara Malaysia (BNM) raised its main policy rate earlier than many had expected today, but given low inflation and a continued need to support the recovery, we still think that the tightening cycle will be much more gradual than markets expect. China Drop-In (12th May, 09:00 BST/16:00 SGT): Join our China and Markets economists for a 20-minute discussion about near to long-term economic challenges, from zero-COVID disruptions to US-China decoupling. 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.

Manufacturing PMIs, Korea Trade (Mar.)

While Korean trade data show exports remained buoyant, regional Manufacturing PMIs point to lost momentum. With headwinds to export-focussed industry mounting, there are tougher times ahead.

Omicron recedes, but other headwinds emerge

Successful vaccination campaigns allowed governments to keep economies open during the recent Omicron waves, and our Mobility Trackers suggest that activity held up much better than we had originally anticipated. Indeed, GDP figures for Vietnam published earlier today suggest the economy brushed off the impact of Omicron this quarter. However, while the risks to growth from COVID-19 are fading, new headwinds are emerging. The war in Ukraine and the surge in global oil prices will drag on the purchasing power of consumers, while a slowdown in the global recovery will weigh on the region’s exports. We recently cut our 2022 forecasts for regional GDP growth by 0.5%. Meanwhile, rising virus cases in China and the lockdowns that have been introduced in some major cities in the country raise the risk of further disruption to global supply chains. Vietnam’s close integration into Chinese supply chains makes it the most vulnerable country in Asia to problems in China.

More dovish signals from South East Asia

Dovish comments from policymakers over the past week support our view that central banks in South East Asia will buck the trend of global tightening and leave interest rates unchanged over the coming months.

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