Are Asian Economies Heading for a Bumpy Ride in 2022
- January 28, 2022
- Blog
The Asia-Pacific region, which has emerged to be the economic hotspot in the last few decades, displayed a huge slump during the first wave of the COVID-19 pandemic. However markets recovered themselves in 2021 to greater extent and the economists are forecasting an expansion of that steady growth in the year 2022 as well. This growth is accredited to the economic expansion and policy changes in countries like India. However, despite becoming the latest epicenter for sourcing and manufacturing activities, economic growth in certain countries is expected to slow down this year due to various reasons. This article is an attempt at summing up the major economic events that are slated/expected to take place across Asia which is likely to shape up the economical picture of the continent.
Disinflation
Owing to the market policies of the Asian countries, the region has seen a lighter impact of inflation than the rest of the world in the last couple of years. Despite the economic disruptions that raged post 2020 and the volatile state of price pressure, Asia has experienced less of a fluctuating consumer price inflation. Inflation is expected to ramp up very marginally and the prices of the essential commodities, in the context of CPI and the overarching international markets, are measured to stay relatively stable in Asia.
In case situations stay the way it was in 2021, Asian producers of electronic gadgets would try to keep their prices in check. This is a direct result of the overstocking/stockpiling that happened in Asian manufacturing and retailing sectors. The rising shipment, transportation charges, and demurrage that happened in the wake of the pandemic, have pointed towards makers designing and devising methods to sell out their products to retain at least a thin margin of profit. The international beneficiaries of the Asian market would definitely gain greatly out of this. The nominal effect of inflation over Asian markets would surely drive the global markets to look into their own policies and make adjustments to alleviate pressure from the price index.
One more trend that has been highlighted to take place in Asian supply chain is that of a cooling inventory drive. Asia is a booming market and a major supplier of electronic goods. The demand for such products increased significantly in the last few years. The manufacturers also catered to this demand well with their robust supply chain dynamics. However, with the increased number of suppliers and less number of takers likely to burgeon in the Asian market, a softer global demand is expected to take place. The expansion of capacity by the leading suppliers and manufacturers will keep the inflation rate stable and the supply crunch that occurred in 2020 is going to give way to excessive inventory and supply.
International Travel Policies
Asian tourists and Chinese tourists, in particular, are major contributors to the global economy. Not only are they conducive to the aviation industry, they also significantly impact the economy of many smaller countries through their buying capacities. However, this scenario came to a screeching halt in 2020. With the pandemic looming large in the global picture, countries imposed various stringent restrictions over international traveling. Various norms came into effect and even though they had been loosened from time-to-time, due to the emergent delta and omicron variants, traveling norms in most of the countries have not been revised, rather have been tightened intermittently.
In this context, domestic tourism in all the Asian countries has received a significant impetus. Money stays within the nation and helps boost the domestic economy. Though the Indian tourism sector received a major setback in 2020 with the outbreak of COVID-19, it is regaining its strength. Tourism sector contributes to around 3% of Indian GDP and is a huge pool of employment. With the various restrictive measures imposed in international traveling, visiting local places, buying products made out of cottage industries would help the medium, small and micro level industries sustain the bane of the pandemic.
Growing Awareness on Climatic Effects
Asia has traditionally been at the center of the ongoing debate concerning carbon emission. Asian countries rely heavily on fossil fuels and the cost of transition towards a net zero situation can be intimidating and thus looks difficult to achieve. However, it is exactly because of this difficulty in transition, Asia has been at the receiving end of carbon emissions. The growing impacts, the tentative pressure on national GDP due to emission and the international pressure on the Asian policy makers to consider their policies and ponder heavily upon their moves to achieve carbon neutrality.
Certain Asian countries have already introduced schemes to curb carbon emission and tackle climate concerns. They are emphasizing on renewable sources of energy. 2022 is also expected to take this baton of expectation forward and many more nations would perhaps embrace renewable sources of energy. Measures must be taken so that the public awareness must not plummet. For enjoying greater success, countries can introduce policies that would impose certain pricing restrictions on carbon trading. Certain incentives/costs can also be initiated over industries that contribute heavily to carbon emission. These penalizing/rewarding effects will lead to those industries relying greatly on alternative sources of energy.
Political Impacts
However one may try, economic activities cannot be seen as separate entities from political circumstances. Governance is all about policy making that directly impacts economics and governments are formed due to political happenings. In Asia, like the rest of the world, political scenarios have a direct bearing on the way economic activities take shape. This year, many of the countries in Asia are slated to go for polls to welcome new governments. Economists and political observers are also anticipating some reshuffles in the top brass of the governance.
While the Philippines and South Korea are going for Presidential elections, some of the biggest and economically important states in India are also poll-bound. While regional voting would perhaps have no great influence on the larger policy making in India, the national elections in some of the states are definitely going to have decisive impressions on the fate of their economy. The outlook that the new Presidents and the new governments are going to have towards international trade policies is being watched over closely. Unfortunately for Asia, the political upheavals in countries like Afghanistan not only made disastrous footprints on their democracy, but also pushed the countries backwards by several decades in terms of economy and poverty. China being a major player in the current world economy, any rearrangement in its top-line structure would definitely send waves across the world.
Policies in Monitoring/Regulating Money
Central banks of all the countries are likely to revise their monetary policies in this context of disinflation. They are expected to decrease the interest rates which will lead to more cash flow in the economy. With better cash inflow and reduced prices, the demand as well as the supply may get pumped. However, with the interest rates getting reduced by national policymakers to give their country’s economy a better push, foreign investors may get disinterested in deploying their money as they may not get good returns. With the flow of foreign currencies getting thinner, the currencies of the Asian countries may face depreciation of value in the international markets viz-a-viz foreign money.
Some of the booming economies that are being supported by foreign money and foreign trade are likely to come under duress due to this phenomenon. With COVID-19 slowing down the economy and not much of business operations taking place, inflation was knocking the doorsteps of these markets. However, to allay this price pressure, governments can take a corrective stance and have money circulated in the economy. In doing so, these countries may face a challenge as to how they strike a balance between depreciating currency values and inflation-related ordeals. With the foreign investment getting affected, the supply of goods would also be impacted. However, with the money market being very active, the demand for goods will also soar high. This will result in the prices of the domestic and the export markets in these nations coming at par. If we talk about India, the Indian currency Rupees are likely to stay rather stable due to the money the government has raised in the bonds market. With the money locked and a stable return being assured, investors are more secure when it comes to the Indian market than any other country that relies on the equity market.
All these assumptions are projections, forecasts and speculations made by economists and industry leaders. The way the economies would shape up is a matter that lies entirely in the future. With the omicron variant making its way in various Asian countries, it is highly probable that all calculations and anticipations may go awry. We need to keep a watchful eye over the Asian market and observe the way it tilts; for good or for bad.