Slower growth, falling inflation and interest rate cuts

GDP growth has slowed sharply across most of Emerging Asia since the middle of last year and looks set to remain weak over the coming quarters, as tight monetary policy at home and subdued activity abroad weigh on demand. We anticipate below-trend and below-consensus growth in most economies this year. Meanwhile, inflationary pressures are continuing to ease, as weak demand, easing disruption from the pandemic and more favourable base effects help to put downward pressure on headline and core inflation. We expect inflation to be back to target in nearly all countries by the end of the year. China, Vietnam and Sri Lanka have all cut interest rates over the past few weeks, and we don’t think it will be long before other countries in the region join in the easing cycle. Korea and Taiwan (where growth prospects are especially bad) are likely to be the next to cut, followed by Indonesia, where sharp recent falls in inflation should open the door to policy easing before the end of the year.