Eastspring: Global growth challenges remain on existing headwinds

by ANIS HAZIM / pic TMR FILE

GLOBAL growth conditions will continue to be challenged by a convergence of existing headwinds including the Russia-Ukraine crisis, hawkish central banks, rising yields, supply shocks, as well as China’s zero-Covid policy, said Eastspring Investments.

Eastspring CIO Bill Maldonado expected the consumer outlook for the US and Asia’s emerging market (EM) countries, namely China, India, Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand to be mixed due to several sentiments.

“In the US, we believe that the consumer outlook is mixed as actual data indicate that consumer spending is seemingly resilient, however, surveys are signalling a deteriorating outlook.

“While EM Asia anchors on China’s growth trajectory, other EMs face imported inflation, due to a stronger US dollar and supply disruptions,” Maldonado said in Eastspring 2022 Mid-Year Outlook report. 

For Europe, the consumer outlook is expected to be hit hardest by the supply disruptions from the Russia-Ukraine crisis and as such, faces a higher risk of stagflation in the near term.

Nevertheless, he opined that economic reopenings post-Covid-19 should be supportive of global growth, but tightening financial conditions alongside hawkish central banks, imply a wide range of outcomes. 

“With the decline in Covid-19 restrictions globally, consumption is likely to continue to shift from goods to services. 

“As such, Asian economies with large domestic populations are expected to fare quite well,” he noted.

He expected Thailand to benefit from the economic reopening as its economy is highly reliant on tourism, while commodity-based economies like Malaysia and Indonesia should also see good GDP growth this year.

Additionally, he viewed that higher commodity prices from supply chain disruptions, rising energy prices and reopening pressures have lifted inflation across Asia. 

“Asian central banks have largely been slower to hike rates relative to their developed market counterparts, although the pace appears to be picking up,” he added.

Thus, Asian central banks may be less aggressive given that higher food and energy prices, which are key inflation drivers in the region, will impact disposable income. 

“With Asian governments’ greater fiscal flexibility, they are more likely to rely on subsidies to mitigate food and energy inflation shock,” he further said.