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Investment Institute
Macroeconomic Research

Outlook 2022: Asia ex. China – Going from export-led to consumption-driven

  • 16 December 2021 (7 min read)

Key points

  • Growth normalisation will no longer be purely export-led. Recovering domestic demand will be a key driver
  • Export-dependent economies with high vaccination continue to outperform those that rely on domestic demand with limited immunity against COVID-19
  • Policy normalisation will see growing central bank hawkishness, but few will carry out actual rate hike

2021 has been a year of surprises. While economic growth rebounded from rock bottom, the region suffered as the Delta variant spread. This stifled consumption and tightened supply constraints, weighing on growth. More recently, rising commodity prices have provided additional headwinds. Some of this year’s trends look set to continue into 2022. Export-dependent economies – Korea, Singapore, and Taiwan – should enjoy another year of above-trend growth, albeit at a slower pace as we expect global demand to revert towards services. In contrast, domestic-oriented economies – India, Indonesia, and the Philippines – with low vaccination rates could continue to struggle against lingering COVID-19-related disruptions. Overall, we forecast economic growth for Asia excluding China to soften slightly to 5.0% yoy from 6.1% yoy this year and normalise further to 4.8% yoy in 2023.

Growth slows but drivers expand

Export growth has been a key driver of Asia’s recovery this year, underpinned by strong demand for technology-related products, in particular semiconductors. However, this factor should weaken in 2022 as the rest of the world recovers from the pandemic, revitalising supplies from outside the region and reducing demand for goods from Asia.

The 2022 recovery should be supported by firmer consumption growth, supported in turn by receding COVID-19 disruptions, a normalisation of domestic activities, tightening labour markets and recovering wage growth. But the degree of virus containment will be the key differentiator across the region. Countries with higher vaccination coverage, will likely see a faster switch of growth drivers than countries that are far from achieving collective immunity.

As COVID-19-related impacts lessen, global demand should start to shift from goods to services. Thanks to recent government efforts, border controls have started to ease for selected countries. These improvements, albeit still fall far short of pre-COVID levels, can undoubtedly bring some much-needed relief to this beleaguered sector.

Limited monetary reaction to transitory inflation

Price pressure is also rising. This has prompted concerns and talks about potential disruptive monetary policy tightening across Asia. While we believe there are plenty of upside risks to inflation in the near term, most central banks are unlikely to react aggressively (Exhibit 1).

The recovery in Asia is expected to be gradual - slowing external demand, particularly from China, COVID-19 still impeding growth, and energy price spikes. Moreover, Consumer Price Index (CPI) inflation remains largely within acceptable ranges of Asian central banks and is expected to normalise after the base effect fades. Finally, higher prices – driven by the energy crunch and supply bottlenecks – should prove transitory, removing the need for aggressive monetary policy tightening. Hence, although some central banks – such as the Bank of Korea and Monetary Authority of Singapore – have spearheaded policy normalization in response to strong local economic recoveries, we expect most central banks in the region to refrain from policy tightening to foster resilience in their economies. In a similar vein, with supporting a sustainable recovery a major focus, fiscal consolidation for the region should also proceed cautiously, leaving plenty of stimulus to aid growth.

Exhibit 1: Upside risks to headline inflation
Source: CEIC and AXA IM Research, as of 12/11/2021

One key risk to our benign outlook is the Fed’s policy. Faster-than-expected Fed tightening could pose a challenge to Asia even though the region should fare better than other parts of emerging markets due to their stronger current account positions and less reliance on external debt. In addition, failure to contain the virus will hold back the consumption-driven recovery, and more persistent inflation could force central banks to tighten earlier than expected. These together, or any one of these alone, could result in a much sharper growth slowdown for Asia next year.


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