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    Next Week In Asia

    Published On: 7 July 2022

    Next Week in Asia is the Asia House 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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    China’s short-term recovery unlikely to shift the spectre of downside risks

    In the week ahead, China’s raft of economic reports will provide further indications relating to the economic impact of the country’s COVID-19 lockdowns. Its second-quarter GDP estimates will likely reveal some recovery. And yet, the retail sales and industrial production reports for June could be more mixed, despite an improvement in lead indications, including the purchasing managers’ index. The lifting of lockdowns could also have boosted retail sales in June after three consecutive months of contraction from March to May. In terms of Q2 GDP growth, China could have benefitted from resilient annual growth in fixed asset investment within the quarter and a general economic recovery in June. However, these drivers are likely to be limited in the light of the long-standing lockdowns during April and May in multiple key economic centres, including Shanghai, Shenzhen, Beijing, and Tianjin. The spectrum of both domestic and global risks is skewed to the downside for China’s economic outlook. The administration’s targeted slowdown may prove to be too optimistic as the economic headwinds, including spiralling inflation, continue to build.

    US President Biden to visit Middle East to address energy security

    US President Biden is due to travel to Israel and Saudi Arabia on 13-16 July in his first trip to the Middle East as President. The visit is expected to include a particular focus on global energy markets and will include a regional summit in Saudi Arabia with leaders from the GCC, Jordan, Egypt, and Iraq. It is at this forum that the US administration may push for OPEC oil production increases. Saudi Arabia’s embassy in Washington has stated that Biden will meet with King Salman and the Crown Prince, Mohammed bin Salman. Biden’s meeting with the Crown Prince will focus on a range of topics including energy security, investment, renewables, and food security. In Israel, Biden will meet the new Prime Minister, Yair Lapid, who replaced Naftali Bennett after his coalition collapsed in late June. Negotiations to open Saudi airspace to all flights operating into and out of Israel are expected.

    Economic partnership in spotlight during UN High-Level Political Forum ministerial meeting next week

    In the week ahead, ministers from the 54 member countries of the UN Economic and Social Council will convene at the UN High-Level Political Forum (HLPF) ministerial meeting at the UN headquarters in New York on 13-15 July under the theme of building back better post-COVID-19, while prioritising the Sustainable Development Goals (SDGs). Re-framing and bolstering country strategies to meet the 17 SDGs on a global scale, with multilateral cooperation, by 2030 is an urgent priority in the light of the climate crisis. Five of the SDGs will be given special focus, of which Goal 17, “Revitalise the global partnership for sustainable development”, will be of interest. Crucially, within Goal 17 is the mobilisation of sufficient financing for the green transition and infrastructure development in emerging economies. This SDG is at risk of being missed amid the global inflation spiral and slowing growth in developing economies. Additionally, the further integration of SDGs into corporate responsibility and reporting will be examined in order to strengthen the efforts around developing global coordination mechanisms.

    India’s headwinds to be heightened by weakening rupee

    India’s economy is faring well on a comparative basis. Domestic growth is being buoyed, in part, by pent-up demand. And yet, its headwinds are likely to continue to build. In the week ahead, the upcoming inflation report for June is likely to continue to show accelerating inflation. Alongside this, industrial production could also show an acceleration. Inflation is now expected to remain higher than the central bank’s 4-6 per cent target range until the end of 2022, according to the Reserve Bank of India Governor Shaktikanta Das on 24 June. India’s inflation acceleration will be further fuelled by the weakening rupee exchange rate, which fell to a record-low of 79.38 to the US dollar on 5 July. Consumers are feeling the impact of a weak rupee as inflated food and oil prices are augmented by higher costs of imported oil and food products, while a falling rupee also puts pressure on India’s importers who are bearing higher costs. The pathways of impact from higher raw material prices could also be reflected in India’s industrial production report.

    Saudi inflation data to be released

    In the week ahead, Saudi Arabia’s inflation data for June will be released. Headline inflation has continued on an uptrend. Although headline inflation remains muted on a comparative basis with, for example US and European economies, Saudi Arabia’s 2.2 per cent reported rate masks significant accelerations in its sub-indices, including notably in food price inflation. On this basis, on 4 July, the government approved financial support (of approximately US$5.3 billion) via direct cash transfers to support households. Saudi Arabia has the second-lowest inflation rate in the G20 and one of the lowest headline inflation rates globally. And yet, on account of the acceleration in price pressures, on 15 June Saudi Arabia’s Central Bank increased its repo and reverse repo rates by 0.5 per cent to 2.25 per cent and 1.75 per cent respectively. Next week will also see Oman release its monthly inflation data for June 2022. Oman’s inflation rate has steadily tracked downward from a decade-high of 4.35 per cent in January 2022 to 2.4 per cent in May 2022.

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