Entries for 'Philippines'

Russia’s war on Ukraine has caused a strong surge in commodity prices, as well as uncertainty regarding global growth and the outlook for inflation. We have revised down our growth forecast for the ASEAN-5 and South Korea. Rising inflation will prompt central banks to begin policy normalization in ’22. Current account dynamics will be driven by relative exposure to commodities. Risks stem from an uncertain outlook for China and higher energy prices.

The result of higher oil prices is a shift in purchasing power from oil consumers to producers. Oil exporters are getting a boost to their terms of trade, leading to wider CA and fiscal surpluses. Higher energy prices will hurt several EMDEs that remain heavily dependent on petroleum imports.

We have revised our 2021 growth outlook for ASEAN+ from 4.5% to 3.6%. This is mostly due to lockdowns weighing on manufacturing and services. However, ASEAN+ countries have more policy space to respond to shocks. Non-resident capital flows are projected to rebound this year to $228 bn. FDI and portfolio debt are key drivers but 21H2 will likely see a slowdown. Nonetheless, we expect flows above pre-pandemic levels in 2021 and 2022.

ASEAN-5 countries experienced strong, export-driven growth in 2021H1. However, the COVID Delta variant is already affecting business sentiment. With vaccination rates still low, we expect growth to slow markedly in H2. Lockdowns in the ASEAN-5 are also beginning to affect global value chains. We expect monetary and fiscal policies to remain supportive into next year.

ASEAN countries will bounce back from the COVID-19 shock this year. However, the pace of the recovery varies due to uneven pandemic control. Supply chain disruptions subside, and ASEAN exports are rising sharply. Fiscal and monetary policy stances will likely remain supportive this year.

We expect a stronger recovery in capital flows to Asia relative to other EMs in 2021. FDI remains an important driver, with India and Indonesia as the largest recipients. Relatively robust inflows and c/a adjustments in ‘20 allow for reserve accumulation. A reemergence of COVID-19 and geopolitical factors are the key risks to the outlook.

Many EM central banks started QE-like programs at the height of the COVID-19 crisis. This coincided with questions arising with respect to the financing of widening deficits. However, actual government bond purchases remain limited so far, including in Asia. Domestic investors appear to have stepped in to buy up additional sovereign issuance.

We analyze external adjustments in EM Asia following the COVID-19 shock. Cross-border flows are shifting considerably in many countries in the region. The global recession weighs on exports and weak domestic demand on imports. Other sources of FX inflows have come under significant pressure as well in H1. This includes both international tourism revenues and workers’ remittances.

We downgrade our forecast and now expect an output contraction of 3.2%. The collapse in tourism has had the most immediate impact on the region. Shutdowns weakened domestic demand and exports declined markedly. Monetary and fiscal countermeasures will only partially offset this effect.

High import content in export production and investment is evident across the region. Recent import compression should support current account positions amid weak exports. However, the multiplier effects of import plunge on investment will likely depress GDP growth.

External imbalances are headwinds facing the fast-growing economies of Indonesia and the Philippines. We have a constructive view of the CADs in these economies as investment has been an important contributor. Reliance on portfolio and other foreign inflows is the key risk.