KUALA LUMPUR— While Asia’s overall economic growth picture is likely to be mixed this year, inflation is not likely to dent the continent’s prospects, said Manulife Investment Management (Manulife IM).
Senior global macro strategist Sue Trinh said economies in the region have a long way to go to recoup output lost due to disruptions brought about by the pandemic.
“In our view, the biggest concern remains weak consumer demand, which will be exposed by the looming downturn in export growth.
“But Asia is better positioned to manage rising price pressure. Broadly speaking, Asia’s milder inflation outlook comes down to one simple factor, that is trade surpluses,” she said in a research note Thursday.
Trinh said economies in the region were able to maximise export production through much of the past two years while.
“At the same time, the surge in pent-up demand in Asia after the reopening was not as strong relative to other regions, particularly when compared with other emerging market (EM) economies,” she said.
She noted that another set of data, namely long-distance freight rates, also supports Manulife IM’s view that inflationary pressure in Asia is likely to be more tamed.
“The rise in intra-Asia shipping costs has been much more muted in comparison with other regions, thanks to excess manufacturing supply and relatively weaker consumer spending.
“An important takeaway here is what this means in regard to monetary policy. For the region as a whole, we expect to see policy normalisation take place at a much slower pace and at a lower magnitude relative to previous cycles and other EM economies,” she said.
She said Malaysia and Singapore may be starting the year at below-trend Gross Domestic Product (GDP), but have a strong potential to recoup lost output.
“In Malaysia, an accelerated vaccination rate and higher government spending ahead of the upcoming election, widely expected to take place in the second half of the year, should support domestic demand,” she explained.
As for Singapore, she said the pace at which vaccination or booster shots are administered has enabled a calibrated reopening; a broad-based recovery, therefore, seems feasible with an improving labour market.
According to Trinh, the strongest macro stories in Asia are Taiwan and Vietnam, whereby these two economies are already growing above their long-term trend GDP levels, and consensus forecasts point toward a Goldilocks regime of accelerating growth and decelerating inflation this year.
Regarding Japan, she said personal consumption, particularly of in-person services, has been picking up since the state of emergency was lifted last September.
Nonetheless, prices should stay benign, and any effort from the Bank of Japan to withdraw liquidity will lag its developed-market peers, she added.
Overall, Trinh said, the macro picture in Asia is likely to be mixed but the operating environment is likely to be more favourable for select economies in the region.
“Crucially, the relatively muted rise in consumer demand and existing excess capacity mean that inflationary pressure on the continent is not likely to be as acute as in other parts of the world, implying that the likelihood of a mad dash to normalise monetary policy is much lower,” she added.
Source: NAM NEWS NETWORK