Emerging Asia


Vietnam: Is the worst over?

With cases of COVID-19 in Vietnam falling sharply and the government easing restrictions, factories are starting to reopen, and the latest data suggest the worst is now over for the country’s manufacturing sector. However, with backlogs of work mounting up, disruption is likely to last for some time.

5 October 2021

Manufacturing PMIs (Sep.)

While regional PMIs showed that the disruption from large virus waves in the region is easing somewhat, unmet orders continue to pile up, meaning that the resulting shortages further down supply chains are set to remain for some time to come.

1 October 2021

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
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Vietnam GDP (Q3)

GDP data reveal that Vietnam paid a heavy economic price in efforts to control the virus this quarter, but monthly activity data at least suggest that the worst is over and that a recovery is now underway.

Rate cut in Thailand, Taiwan applies to join CPTPP

With the economy in the doldrums and deflation worries increasing, we think the Bank of Thailand will cut interest rates by a further 25bp at its meeting on Wednesday (most other analysts are expecting rates to stay on hold at 0.5%). Meanwhile, Taiwan followed China this week by applying to join the CPTPP. Taiwan’s entry would provide much less of a boost to existing members, but it would also be significantly less controversial.

Encouraging signs in South East Asia

Virus outbreaks across South East Asia are in retreat. Having taken a severe hit from the most recent Delta wave, economic recoveries in the region should now resume. Falling virus cases and reopening should also help ease some of the supply-chain disruption caused by factory closures and workers having to quarantine.
We’re holding a week of online events from 27th September to accompany our special research series. Event details and registration here.

Manufacturing PMIs (Aug.)

Falling output indices in Korea and Taiwan suggest that the virus disruption in South East Asia is reverberating across the region. The end of supply chain shortages continues to slip further out of sight.

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.

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