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    Next Week in Asia

    Published On: 25 November 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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    Reports to show Asia’s year-end manufacturing performance

    In the week ahead, lead indications for manufacturing sector developments in Asia will be published. Readings for November will be released for economies including Japan, China, Indonesia, Vietnam, Thailand and India. It is clear from the closely-watched purchasing manager’s indices that there was a strong and broad-based rebound in manufacturing activity in Asia as lockdown measures eased. The extent and the variability of the rebounds within Southeast Asia will be worth watching. China’s upswing has been more muted than its neighbours and this divergence is worth monitoring in the months to come. Its economy is likely to witness a more moderate rebound compared to some of its neighbours in 2022. New orders for manufactured goods were reported at a multi-month high. However, rising costs constitute a continued risk to the outlook: inflationary pressure remains elevated with average input prices rising at the fastest rate since December 2016. This stands to impact China’s export sales and employment, which have been weak spots in China’s manufacturing sector of late.

    US-China strategic oil reserve release to test OPEC+ in upcoming meeting

    Concerted action by the US, China, South Korea, Japan, India, and the UK to release their strategic oil reserves has sharpened focus on the upcoming OPEC+ meeting on 2 December. Of particular interest will be whether OPEC+ will abstain from planned production increases. In its largest-ever release of stored oil, the US will release 50 million barrels from its roughly 600m-barrel Strategic Petroleum Reserve. This is seen as an attempt to drive down oil prices. At the time of writing, China has not confirmed the number of barrels it is releasing, though there have been indications that it will take action. In July 2021, OPEC+ agreed to gradually increase supplies by 400,000 b/d each month, allowing it to restore the historic 9.7 million b/d production cut it made in 2020. Analysts believe the US-led move is largely aimed at showing dissatisfaction at OPEC+ supply curbs and is expected to have limited impact on the oil price. OPEC+ have said curbs are necessary and its view is predicated on its expectation that oil demand could fall with a resurgence in COVID-19 cases in Europe, and new social restrictions.

    Asia’s consumer sector set for a weak autumn

    In the week ahead, October retail sales reports for Japan, Thailand, Vietnam, Singapore, Hong Kong and South Korea are likely to show deceleration or continued outright contractions on an annual basis. Looking to the start of next year, weakness in consumer demand could persist. Consumers could see headwinds for some time to come, given increasing indications of rising inflation pressures and the uncertainty associated with resurgent COVID-19 cases. Additionally, loss of household income owing to protracted lockdown measures throughout Asia is likely to have had an impact. Closures for small and medium-sized enterprises will have negative feedback effects to small business owners. More systemically, a general lack of liquidity in a number of Southeast Asian economies – particularly compared to the advanced economies within the G7 – is a key factor weighing on the former economies’ outlook. This has meant that financial conditions are tighter than what would optimally support consumer spending during a recovery. What’s more, there is the risk of central banks tightening policy in order to stem inflation pressures that have been building in a number of economies.

    India’s trade dynamics to catch up with its growth outlook

    Expectations for India’s 2022 growth outlook have been steadily revised upwards. Alongside this, monetary tightening in the form of higher interest rates is expected by the end of this year. In the week ahead, trade data for November is likely to reveal the key weak spot within India’s growth outlook. As a share of its total economy, India’s trade continues on a downtrend. Medium-term policy goals should be geared to promoting bilateral trade, and particularly on the export front, in order to arrest this downtrend. India’s trade outlook will hinge, to some extent, on oil prices. In October, much of the country’s trade deficit stemmed from developments pertaining to its higher oil imports (purchases of crude oil were up 140.5 per cent annually). Looking ahead, the outlook for merchandise trade is likely to be supported by signs of strength in India’s exports, given that it may start to take some of China’s market share in certain sectors – particularly amid supply side disruptions and debt-related risks in certain economic sectors in China.

    Iran nuclear talks resume in Vienna

    Diplomats will meet in Vienna on 29 November to resume talks on brokering a new nuclear deal. Negotiations had been suspended over the summer ahead of Iran’s presidential election, which resulted in a new administration led by Ebrahim Raisi. Iran’s new negotiating team will meet their European, Chinese, and Russian counterparts, and are expected to present Iran’s position on a draft agreement which was issued before the election. US officials will also be present in Vienna, but are not expected to be directly involved in negotiations. This follows Iran’s refusal to negotiate directly with the US. Reports have indicated that recent discussions between the International Atomic Energy Agency (IAEA) and Iran’s government did not lead to resolution over IAEA access to key Iranian nuclear sites. This particular development could weigh on the upcoming negotiations. US Special Representative for Iran, Robert Malley, has recently toured several Arab nations where the regional consensus regarding US-Iran negotiations has been focused on promoting stability.

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