Market Updates

The Asia-Pacific region has been buoyed by its goods-producing industries which accelerated in recent months because of both export volume and price effects. With rising vaccination rates across much of APAC expected to bolster the 2022 outlook, gross domestic product (GDP) growth in the region should be around 4.3 per cent. The economy is expected to accelerate further in 2023.

While Southeast Asia has lagged the region's recovery pace, it will accelerate in the coming year as social distancing rules are eased. By the end of 2022, all major economies in the region, including Southeast Asia, will have finally achieved full recovery as measured by real GDP that exceeds its level of 2019's fourth quarter.

Overall, domestic demand is expected to add to the established export-driven growth, with high-frequency mobility indexes showing the potential for improving retail sales and other consumer spending with mobility for retail and recreation purposes rapidly approaching pre-pandemic levels. More importantly, employees are increasingly returning to their places of work, bringing life back to centers of office employment and accelerating that is desperately needed to unclog supply chains.

On the flip side, China's slowdown is the next greatest risk following Covid-19. The Moody's Analytics Supply-Chain Stress Index for China is "well above anything seen" over the past decade and it continues to rise. The index captures 10 supply-side variables that reflect production, inventory and transportation factors. China will also dampen the pace of economic recovery throughout APAC by its zero-Covid-19 policy, in particular, the continued restrictions on international travel in and out of China will limit the impact of opening international travel lanes around the region. This will affect countries such Vietnam, Thailand, the Philippines and Singapore that were highly dependent upon arrivals from China prior to the pandemic.

Separately, inflation remains relatively mild in APAC with only a handful of economies struggling with rapid acceleration of consumer prices over the past 6 months. That being said, this will change in the coming months. Central banks in New Zealand, Singapore and South Korea have already responded with tightened monetary policy. Elsewhere where economic recovery is less entrenched but inflation is at the high end or above central bank target ranges, such as in India and the Philippines, policymakers will likely continue to hold rates steady for a number of months to ensure economic recovery is secure.

The US Federal Reserve's current policy outlook provides central banks in APAC some time to sit ight and allow fiscal policy and easing mobility restrictions to drive economic recovery. but there is a risk that the Fed could accelerate its fed funds policy-rate normalization sooner than late 2022........In this case, AOAC central bankers would be pressured to move sooner as will despite still-uncertain economic recoveries.