Macro Insights Weekly: GDP Nowcast: Diverging paths

Updates to our proprietary GDP Nowcast models point to diverging paths; Spill-over from slowdown in US+EU and high domestic inflation are key watch factors.
Group Research, Radhika Rao, Ma Tieying25 Jul 2022
  • Service sector reopening is expected to benefit Singapore
  • China’s 3Q trend confirms the worst is behind the economy, but Covid path will be key
  • Base effects will result in choppy readings in India, ….
  • … while Indonesia benefits from positive terms of trade
  • Key issues for 2H: commodity cycle direction, geopolitics, peak in US inflation, Fed rate hikes
Photo credit: Unsplash Photo

Commentary: GDP Nowcasts –Diverging paths

Updates to our proprietary GDP Nowcast models for Singapore, China, India, and Indonesia put the economies on divergent paths into mid-2022. 

Singapore’s advance estimates for 2Q22 released earlier, ticked up to 4.8%yoy, but registered zero growth on sequential basis, likely due to spillover from a slowdown in China and tightening financial conditions. Our model points to a modest pullback in 3Q, with improving tourist arrivals and higher residential transactions providing relief to the service sector but offset by slowing retail sales and real credit growth.

China’s 3Q GDP Nowcast projection confirms the view that the worst is behind the economy. Most of the sub-indicators – industrial production, fixed asset investments, retail sales etc. – notched a modest rise from lows into 3Q but trend thereafter will be largely beholden to the evolving domestic pandemic situation. Rising unemployment, property market stress and a fading export boom will also limit the extent of buoyance in 2H22.

India’s growth path over the 2Q22 (1QFY23) and 3Q will be choppy, due to base effects. Headline growth will be in double-digits in 2Q, boosted by service sector reopening, higher exports, freight, and credit activity. Household real purchasing power is set to moderate on sticky inflation, via high food/ fuel costs and lower labour participation rate. 3Q growth will show a reverse-V, edging back towards the mid-6% handle.

Indonesia’s 2Q-3Q trend is likely to benefit from reopening boost, with activity unscathed by rising Covid cases this quarter. Favourable terms of trade due to high commodity prices has lent a significant boost to the external sector, with trickle down benefit to demand. Easier financial conditions and extension in energy subsidies has shielded household purchasing power, even as high food, unsubsidized fuel adjustments and VAT increase bite at the margin. Bank Indonesia continues to bide time, exhibited little urgency to join global and regional peers in tightening policy, as domestic considerations are given a higher weightage in the policy mix.

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Radhika Rao

Senior Economist – Eurozone, India, Indonesia

Ma Tieying 馬鐵英, CFA

Senior Economist - Japan, South Korea, & Taiwan 經濟學家 - 日本, 南韓及台灣

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