Asia week ahead: Growth, inflation or a bit of both?

Record policy stimulus last year together with recovering domestic spending and rising global oil prices are contributing to worries about rising inflation ahead. For Asia, such worries are premature given that, aside from a couple of economies like India and the Philippines, inflation around the region continues to be benign. We aren’t ruling out imminent inflation risks stemming from the low base effects, however.

Of the three countries to release February inflation figures next week, Hong Kong SAR is expected to show some moderation, Malaysia should go deeper into negative territory and Singapore will likely accelerate following year-on-year January readings of 1.9%, -0.2% and -0.2%, respectively.

A common thread in most inflation data lately is the transmission of rising global oil prices into domestic fuel and transport prices and a further broadening out to other inflation components.

Both Malaysia and Singapore are standouts for the administrative fuel price hikes. However, the dampening effects of the Covid-19 movement restrictions in Malaysia on consumer spending have outweighed higher fuel prices and this pushed headline inflation deeper into negative territory in February. In Singapore, a 21% hike in petrol duty in the FY2021 Budget worked towards boosting both the headline and core inflation in the last month.

We see both economies experiencing rising inflation in the months ahead, with Malaysia’s far outpacing Singapore’s on the back of more pronounced base effects.

A raft of February trade and industrial production (IP) releases will inform on GDP growth in the current quarter. Industrial production growth typically tracks real GDP growth closely.

The exports recovery is deep-rooted in Singapore and Taiwan and this is powering their manufacturing higher. This is what underlies our house view of double-digit IP growth for both. Taiwan’s export orders data will be a leading indicator for where this is headed in the months ahead.

On the other spectrum is Thailand, where exports continue to be sluggish and manufacturing continues to extend an almost two-year-long decline.

The combination of low inflation and firming growth argue for stable central bank policies pretty much everywhere in Asia. We don’t anticipate any policy actions at two central bank meetings next week in the Philippines and Thailand.

Even so, there will be a great deal of interest in the Bangko Sentral ng Pilipinas’ meeting as inflation has exceeded the BSP’s 4% policy limit in recent months, while the raging Covid-19 spread is taking a toll on economic growth. We believe this central bank will see through inflation and instead focus on growth. In the process, we see the BSP leaving the interest rate policy on hold throughout 2021.