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    Next Week in Asia – 5 August 21

    Published On: 1 July 2021

    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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    China’s economic data could show COVID-19 and flooding impacts

    China’s upcoming consumer and producer price data for July are likely to show a continuing divergence. This gap (and China’s low inflation) is largely due to a number of China’s factories absorbing higher costs for raw materials, and not passing them on; this has helped prevent consumer-goods prices rising both domestically and elsewhere in global supply chains. Of particular interest will be the degree to which surging shipping costs will have continued into the summer months, due to container shortages and increased demand from China’s trading partners, particularly from the US. If continued, this could impinge on economic activity and China’s demand prospects. Container capacity is particularly tight for eastbound transpacific shipments, with increased COVID-19 outbreaks limiting transport. The recent floods in Henan province may also feed through to higher food prices, which would be particularly problematic given that the province accounts for a third of China’s wheat production.

    India’s economy stabilises, but inflation could stoke discontent

    With the recent wave of COVID-19 infections having subsided, the prospects for the Indian economy may start to improve. Anecdotally, there have been indications that hiring, particularly at larger firms, has picked up. Additionally, indications for the month of July were particularly positive for the manufacturing sector. This is likely to be reflected in upcoming manufacturing and industrial production data. India still finds itself in a tenuous position when it comes to the outlook – it has to negotiate and re-engineer its trade and investment positions with key partners if its growth is to be sustainable and broadly underpinned. Head-turning inflation numbers have also rattled India’s bond markets. Components of its inflation report are also important as a gauge for households. Increases in the cost of living could stoke further discontent in addition to the recent dissatisfaction of protesting farmers that have opposed the government’s agricultural policies for months.

    Economic indicators could exacerbate political tensions in Japan

    Japan’s upcoming leading economic indicators, including the producer price report and bank lending figures, will be of particular interest in the week ahead amid a fraught political environment. Of most concern is bank lending growth, which has shown some deceleration. A lack of liquidity will hinder business investment spending. Uncertainty around whether or not the expected rebound in the second half of 2021 materialises will add further pressure to a government that is declining in popularity. Prime Minister Suga’s approval ratings have fallen, owing to both the handling of the COVID-19 crisis and concerns relating to the Olympic Games. Polls have indicated that low approval ratings are linked, in part, to the generally complex COVID-19 guidance issued by the Prime Minister’s office. There is a lack of clarity as to what indicators the government has used to issue states of emergency.

    Philippines growth expected to slow amid third COVID-19 wave

    The upcoming GDP report for the second quarter could show a further deceleration in the Philippines’ economy as the country continues to tackle the COVID-19 crisis. Any bounce-back is likely to be short-lived, given the third COVID-19 wave of infections in July. Authorities have announced an extended night curfew in Manila to control the spread of the Delta variant. At its upcoming policy meeting, the central bank is likely to continue its loose monetary policy. The Philippines must accelerate its COVID-19 vaccine rollout and pursue more structural reforms. In this regard, the Department of Energy’s efforts to unlock the country’s offshore wind potential has been encouraging, as is the agreement to open up a remittance corridor with Japan in light of the US$1.8 billion in yearly remittances from Japan to the Philippines.

    Watch Malaysia as political tensions continue

    The political situation in Malaysia will be closely watched over the week ahead, amid fears of a constitutional crisis. Prime Minister Muhyiddin Yassin is under pressure to resign amid tensions with the monarchy over the handling of the country’s COVID-19 response. Malaysia is currently contending with consistently high daily COVID-19 infections, with hospitals reported to be crowded and overwhelmed. The government’s decision to revoke emergency laws was met with a rebuke from the palace, which said the move – without the king’s approval – was against the country’s constitution. Although there is likely to be some positive news in the upcoming second-quarter GDP report, economic scarring is likely to deepen and impact daily wage earners and lower income families. This could fuel further discontent with how the government has handled the crisis.

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