In today’s briefing:
- China: Bear Case Materialising?
- US-China Tensions: Taiwan Flashpoint Just Got A Bit Riskier
- Singapore: Recalibrating Our Growth Forecasts Amid Cross-Currents
- EM Asia: Taking Stock of Foreign Direct Investment in Asia
- Services Smash into Inflationary Despair
China: Bear Case Materialising?
- The consensus view is now coalescing with our bearish call on 8 April that risk aversion among local governments would bring about a protracted exit from zero-COVID, thereby impacting growth.
- There are now more indications that the policy response would prove ineffectual in spurring a recovery in 2H22 – which underpins our bear case scenario of just 2% growth.
- We expect infrastructure construction to be buffeted by rolling lockdowns, while declining confidence (and wherewithal to spend) among households mean that tax cuts to spur consumption could fall flat.
US-China Tensions: Taiwan Flashpoint Just Got A Bit Riskier
- Biden appears to commit US to defend Taiwan against China.
- China will not sit still – near-term, its response could raise tensions.
- There is a higher chance than before of frictions growing between the US and China over Taiwan.
Singapore: Recalibrating Our Growth Forecasts Amid Cross-Currents
- Supply disruptions abroad, a weaker outlook for financial services, and slower growth in real estate following macroprudential tightening prompt a 2022 GDP growth forecast downgrade to 4.4% from 5.4% previously.
- We see these headwinds partially offset by an earlier-than-expected reopening of the economy, though the reopening impulse is also blunted by a recovery in outbound tourism.
- The balance of risks to growth is tilted to the downside. growth will disappoint if the Ukraine-Russia conflict escalates further and/or the US capex engine loses momentum.
EM Asia: Taking Stock of Foreign Direct Investment in Asia
- After declining sharply in 2020, FDI in Asia has recovered spiritedly. The robust recovery reflects continued investor confidence in the region.
- FDI in Asia is poised to grow even further with the implementation of RCEP, an enduring emphasis on infrastructure and the relocation of supply chains from China.
- Flows of FDI into high-tech economic sectors and FDI related to the secular trends of climate change and the digital economy will facilitate structural economic changes in the region.
Services Smash into Inflationary Despair
- Services activity crashed in the UK and US as high inflation destroyed demand. Although the EA move was relatively modest, it suffers the same crisis in consumer confidence.
- EA vacancies are booming beyond the decline in unemployment, indicating a mismatch, while productivity languishes below trend. Both are inflationary fundamentals.
- The ECB is getting pushed to respond with a rate hike in July, contrary to our view that it would end asset purchases then and start hiking in September.
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