Driving commercial and political engagement between Asia, the Middle East and Europe
Driving commercial and political engagement between Asia, the Middle East and Europe
Driving commercial and political engagement between Asia, the Middle East and Europe
Next Week in Asia is the Asia House weekly briefing on key trade, investment, and policy issues to watch across Asia in the week ahead, with analysis and views from our Research and Advisory team.
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The closely-watched Reuters Tankan sentiment index for manufacturers rose to 25 in July, from 22 in the previous month – its highest since November 2018 – as export-reliant firms benefited from the recovery in global demand. The upcoming August report should reveal more of the same. Similarly, estimates for Japan’s second-quarter growth, and machinery orders for June, are expected to show strength. Given the weakness in private consumption (which dropped for the first time in three quarters in the last report), any strength will be encouraging. Indeed, business sentiment has generally been resilient in contrast to low public approval of the government and its handling of the COVID-19 crisis.
Upcoming retail sales and industrial production reports will show whether China’s annual growth deceleration is continuing. July data could reflect further deceleration, owing in part to regional lockdown measures. Growth in China and in Southeast Asia is likely to be moderate, given the renewed spread of COVID-19. Analysts will also be watching the People’s Bank of China’s decision on interest rates for US$108 billion of one-year loans to banks, which will mature next week.
With the spread of the COVID-19 Delta (and Delta plus) variants, the speed and composition of Indonesia’s economic recovery is subject to greater downside risks. Consequently, Indonesia’s central bank is likely to maintain an accommodative stance at its upcoming meeting. It is likely to echo comments made by central bank governor Perry Warjiyo that inflationary pressures are unlikely to emerge in the short term and that a long period of low rates is likely. Bank Indonesia is expected to take a longer amount of time to reverse its monetary stimulus due to the spread of the Delta variant and its economic impact. In the meantime, indications pertaining to the economy will remain mixed, with signs of strength in retail spending and exports coming from a low base in the previous year and driven by developments in the fuel sector. The upcoming retail sales and trade data will also provide updated indications.
Three sources of risk – currency volatility, spillover from tensions in Myanmar, and domestic protests (calling for the Prime Minister’s resignation) – are present in Thailand and could destabilise the political and economic landscape. Thailand’s growth deceleration has coincided with an increase in COVID-19 infections. One particular characteristic to watch for – in addition to a further growth deceleration in its upcoming second-quarter GDP report – is the volatility in the baht exchange rate, particularly against the US dollar. It has depreciated to multi-month lows and is being monitored both by the central bank and the Federation of Thai Industries. The weakness has been linked to the deterioration in the domestic economy and the uncertainty associated with the COVID-19 crisis. On the production side, growth in Thailand’s non-agricultural sector has decelerated while the service sector and agricultural output have posted outright contractions.
Inflation developments in the Gulf Cooperation Council (GCC) economies will be of interest given the uptick in inflation readings in the Middle East more generally. Qatar’s inflation rate eased slightly to 1.98 per cent in June from 2.47 per cent in May, which marked the highest inflation reading since September 2016. Saudi Arabia’s annual inflation rate also accelerated to 6.2 per cent in June, the highest reading since August 2020. Saudi Arabia’s data show that price pressures have been broad-based. Upcoming reports from both Qatar and Saudi Arabia will shed light on developments in July. An inflation acceleration has been evident to varying degrees across the broader region. In Iran, for example, there have been reports that the risks are particularly high for severe and uncontrollable inflation. Iran’s labour ministry has indicated that food price inflation crossed the ‘crisis’ threshold in the month ending June 21, with over two-thirds of basic food staples (such as meat, rice and fruit) seeing an average annual price increase of at least 24 per cent.
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