The latest monthly activity data suggest that most economies struggled in the second quarter of the year. While tourism arrivals are continuing to rise, there are signs in a few places that the recovery is starting to level off, with international visitors still well below pre-crisis levels. The manufacturing PMIs have been downbeat, and there is no sign that export demand is starting to improve. Higher interest rates are leading to a slowdown in credit growth, while housing markets are also starting to come off the boil. Encouragingly, headline inflation across the region continued to ease in May, and is now back to target in a number of places, namely Vietnam, Thailand, Indonesia and India. Over the past month policymakers in Sri Lanka, China and Vietnam have cut interest rates, while other central banks have started to sound more dovish. We expect more easing over the coming months, with the Bank of Korea likely to be the next central bank to loosen policy.
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