Macro Insights Weekly: Asia’s trade outlook

The near-term best may well be behind for Asia’s trade, as indicated by recently fading PMIs and peaking exports figures.
Taimur Baig, Duncan Tan04 Apr 2022
  • Asia has proven through the pandemic its premier global trade hub status
  • But high inflation and rising interest rates could cause external demand to weaken this year
  • Also, likely supply chain disruptions due to the ongoing pandemic surge in China is worrisome
  • China’s PMI has slipped below 50, while regional PMIs largely peaked in late 2021
  • One hope is that some of these headwinds, especially supply chain related, will be temporary
Photo credit: AFP Photo

Commentary: Asia’s trade outlook

Despite all the doom and gloom about deglobalization and trade wars, Asia continues to prosper with trade. Through the first two months of the year, regional exports were up 57% over the same period in 2019, underscoring not only full recovery from the pandemic shock, but sustained strength after years of lackluster performance.

Asia has shrugged off a prolonged slowdown in the electronics cycle, proving to be the key zone of production to meet the strong global demand for manufactured goods. Trade agreements have been expanded and strengthened, foreign direct investment has continued unabated, and regional companies have continued their upward journey along the value chain. Pandemic-related support measures and shifts in consumer preference worldwide over the last couple of years have materialised in greater demand for goods produced in the region. Now, with commodity prices surging, some countries will benefit further, with Malaysia and Indonesia exporting energy and India exporting wheat.

But the best might be behind for the time being. Global demand will face risks in 2022 from high inflation and rising interest rates, so a gradual slowdown in exports growth ought to be expected. Also, likely supply chain disruptions due to the ongoing pandemic surge in China is worrisome. Already, China’s PMI trend (which slipped below 50 in March) has turned downward. Even beyond China, regional PMIs largely peaked late last year. One hope is that some of these headwinds, especially supply chain related, will be temporary.

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Taimur Baig, Ph.D.

Chief Economist - Global

Duncan Tan

Rates Strategist - Asia

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