KUALA LUMPUR, Oct 20 — The Asia-Pacific (Apac) economy is emerging from an extremely weak third quarter (Q3) that was weighed down by the combined effects of mobility restrictions to contain the Delta variant of Covid-19 and the resulting supply-chain disruptions and weak domestic demand.
In its research note, Moody’s Analytics noted that the Delta wave has now subsided significantly across all of Asia, and most importantly, in Southeast Asia, except for Singapore.
It said all countries are easing mobility restrictions — at least for vaccinated persons — and vaccination rates are rising everywhere, while the Google mobility indices across the region are back to their mid-April levels prior to the emergence of the variant.
“The easing of mobility restrictions will raise demand for local goods and services throughout the region, and the ability to fully staff manufacturing facilities will allow foreign trade to continue to provide a foundation for the region.
“This will help ease supply chains in the region, for example, as electronics and auto parts plants ramp up production in Malaysia and Thailand, with supplies of consumer goods starting to flow again from Vietnam’s many industrial parks,” it said.
However, it noted that it may take some time — particularly in Vietnam — for migrant workers from rural areas to be comfortable returning to the urban production centres.
On another note, Moody’s Analytics said commodity exports will also help drive the region’s producers in Q4 and into next year, with crude oil, palm oil, coal and iron ore — among others — contributing to stable trade balances in Indonesia and Malaysia.
Meanwhile, farther north, manufacturers in Japan and China are still suffering from high prices or outright shortages of imported intermediate goods, it said.
It noted that China’s Q4 performance is being weighed down by more than parts shortages, with lasting effects into 2022 as new regulations add uncertainty to both production and consumption.
“Efforts to reduce the use of coal in power generation has led to power shortages for industrial users.
“The uncertainty over the resolution of property-developer Evergrande’s debt has also slowed new construction, demand for housing units, and property price appreciation; reverberating through local governments, which are earning less from land sales and issuing fewer bonds for infrastructure construction,” it said.
It also noted that China’s tighter regulation of tech industries and financial services along with some pullback of fiscal stimulus has slowed investment, hiring and consumer spending, leading to a very modest gross domestic product (GDP) Q3 growth rate of just 0.2 per cent from Q2.
As such, Moody’s Analytics had revised its forecasted growth rates for China’s real GDP for Q4 and through the first half of 2022 downwards, bringing the annual growth rate for 2021 down to nearly eight per cent, and to a little less than five per cent for 2022.
“Thus, the pattern of growth in Asia has turned on its head, with China slowing and South and Southeast Asia improving.
“Barring another wave of some new variant of Covid-19, the entire region should recover, with even the regional laggards Philippines and Thailand recouping their lost output from the pandemic by the end of 2022,” it opined.
As for inflation, the research house said that as Apac joins the global recovery, inflation risks will accelerate as demand rises with no end in sight to supply-chain bottlenecks in the near term, however, it still appears to be manageable.
Consumer price inflation is less than two per cent across much of the region, while exceeding four per cent only in the Philippines and India.
“The region remains far from stagflation. Inflation is well below the double-digit rates of the late 1970s and the bouts of high inflation in the 1980s and 1990s.
“Furthermore, global and regional GDP growth, while currently slowing, is nowhere near the zero to one per cent rates that the economy approached several times in the 1980s,” it said.
In terms of foreign exchange (forex), it said there is good reason to expect forex volatility to remain modest in the coming year if inflation persists and as more central banks move to normalise their policy rates.
So far, the exchange rates versus the US dollar are close to their pre-pandemic rates and the strong foreign trade positions of China and Taiwan keep their currencies somewhat elevated, it noted.
“Even Indonesia’s rupiah has stabilised following initial weakness at the onset of the pandemic, bolstered by relatively stable capital flows into the country and throughout Apac.
“Meanwhile, the Malaysian and Thai currencies reflect the impact of Covid-19 movement restrictions on their export-based and tourism industries, but this should prove to be temporary,” it said.
Moody’s Analytics also highlighted that foreign reserves are ample and have climbed in recent years across the region, which will add to currency stability as the region enters a period of uncertain inflation trends and potentially divergent monetary policy trends.
It added monetary policy is expected to remain accommodative in China into 2022 to ensure a stable growth rate.
Similarly, policy rates are also expected to remain stable in most of Southeast Asia, Australia and India through mid-2022, as policymakers focus on continued economic recovery while the region emerges from its Delta-wave movement controls.
— Bernama
