Recovery on the cards for APAC despite near-term volatility: Moody's Analytics

GROWTH and recovery are still on the cards for the Asia-Pacific region even as the Omicron wave sets up near-term risks to the regional economy, said Moody's Analytics on Thursday (Jan 20).

"Across the Asia-Pacific region, real GDP forecasts for the early-2022 period have been revised to slower growth in India, Hong Kong and Thailand," said Steve Cochrane, chief Asia-Pacific economist at Moody's Analytics.

India, which is facing many new state-level movement restrictions and has seen foreign trade disappoint in recent months, will likely see its expected economic rebound in the first quarter pushed back to the second.

That being said, the forecast for the first half of 2022 has "changed little" and while the impacts of Covid-19 will create some volatility, this will gradually diminish over time, said Cochrane, noting that elsewhere, waves of Omicron have proven strong but short lived.

Thus far, policy responses have been muted except in Australia and the Philippines where movement restrictions have been heightened again following a surge in case numbers.

Thus far, Google Mobility Data indicates that impact on domestic worker mobility has been limited within the region. It is beginning to be felt in the Philippines and in Thailand, where declines in mobility for retail and recreational purposes have fallen most sharply in mid-January. These indexes are however still above their third-quarter values of last year.

"Risks of further domestic movement restrictions that could hobble near-term growth are focused in Indonesia and the Philippines, where public health services are less expansive and vaccination rates remain relatively low," said Cochrane.

The standouts in terms of policy stances are China and Hong Kong where zero-Covid policies have led to expanded international travel limits and domestic restrictions. That being said, additional supply-chain disruptions have been few and short-lived.

"But, the uncertain path of Omicron creates downside risks ranging from increased volatility of supply disruptions to severe and lengthy cuts in shipments that would exacerbate global inflation," noted Cochrane.

In the second half of the year, policy shifts to the forefront with risks of over-aggressive monetary policy tightening or fiscal consolidation.

"Stubbornly high inflation could result in faster-than-expected rate hikes around the region. Further, such high inflation coupled with solid economic growth could lead to spending reductions to rein in public debt," he said.