WEBVTT - Kopi Time E078 - China slowdown and implications for Asean growth

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<v Speaker 1>Mhm.

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<v Speaker 2>Welcome to Kobe time.

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<v Speaker 1>A podcast series on markets and economies from DBS group research.

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<v Speaker 1>I'm famous economist welcoming you to our 78th episode.

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<v Speaker 1>Today it's just yours truly with a commentary on china's

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<v Speaker 1>slowdown and what that means for the countries in Asean

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<v Speaker 1>now clearly china matters

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<v Speaker 1>while china's outlook faces numerous headwinds.

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<v Speaker 1>Even a recent slowdown in trend growth has not dented.

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<v Speaker 1>It's growing share of global output

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<v Speaker 1>In current US dollars between 2010 and 2020 China's share

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<v Speaker 1>of global GDP nearly doubled just astonishing.

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<v Speaker 1>Barring a major setback china is actually on course to

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<v Speaker 1>become the largest economy in the world before this decade

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<v Speaker 1>is over. Although that's in aggregate terms is the per

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<v Speaker 1>capita income would still be less than a quarter of

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<v Speaker 1>that of the US.

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<v Speaker 1>Now let's look at it from another angle. But using

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<v Speaker 1>the same data

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<v Speaker 1>China's nominal GDP was $17.5 trillion 2021

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<v Speaker 1>Compared to $14.9 trillion dollars in the previous years.

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<v Speaker 1>That means China's nominal GDP expanded on a year on

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<v Speaker 1>year basis by $2.6 trillion dollars last year.

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<v Speaker 1>That was 22% higher than the expansion of the US.

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<v Speaker 1>As the largest contributor to global growth. China's 2022 outlook

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<v Speaker 1>matters for the rest of the world, particularly Asean.

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<v Speaker 1>But the key question is by how much

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<v Speaker 1>we examined associations reliance on china's growth by running crowds

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<v Speaker 1>regressions for each Asean country for the period 2005 to 2021.

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<v Speaker 1>So 16 17 years worth of data

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<v Speaker 1>with three independent variables on the right hand side there

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<v Speaker 1>are real GDP growth rates of china. Real GDP growth

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<v Speaker 1>rates of the U. S. As well as changing oil prices.

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<v Speaker 1>So as you can see we're trying to get three

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<v Speaker 1>really different drivers of growth.

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<v Speaker 1>We run this exercise using both quarterly and annual data

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<v Speaker 1>and find fairly similar results which is China matters for

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<v Speaker 1>ASEAN growth and it matters more today than it did

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<v Speaker 1>10 years ago. But the us matters much more.

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<v Speaker 1>The coefficient estimates vary. You can actually go through them

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<v Speaker 1>in detail in our made 30 weekly a link for

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<v Speaker 1>that is provided in the shows. But in all cases

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<v Speaker 1>the US enters these regression results with a substantially greater

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<v Speaker 1>magnitude than that of China.

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<v Speaker 1>The reason for this is clear,

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<v Speaker 1>china's trade linkages with the region are deep and growing

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<v Speaker 1>but there is still largely a function of the global

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<v Speaker 1>trade dynamic as opposed to china's domestic demand.

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<v Speaker 1>Many goods produced in Asean countries are intermediate inputs in

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<v Speaker 1>the supply chain which go to china for assembly. And

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<v Speaker 1>the linkage also works in reverse. A large chunk of

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<v Speaker 1>the region's imports are made in china inputs for Ottawa's

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<v Speaker 1>electrical and electronic assembly.

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<v Speaker 1>As long as global demand is holding up china's domestic demand.

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<v Speaker 1>Headwinds will not cause regional trade to suffer greatly in

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<v Speaker 1>our view.

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<v Speaker 1>Now with respect to global demand. The US Outlook remains key.

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<v Speaker 1>As power analysis, let's look at some data on trade

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<v Speaker 1>data through April of this year show regional exports growth

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<v Speaker 1>easing to around 10% on your on your basis

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<v Speaker 1>quite strong given the wide range of adverse base effects

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<v Speaker 1>in place and adverse factors in place.

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<v Speaker 1>And PMS also have eased somewhat in the region.

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<v Speaker 1>But I would say they're kind of modest easing, not

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<v Speaker 1>sharp easing.

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<v Speaker 1>Considering the wide ranging headwinds in place. We find the

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<v Speaker 1>resilient export figures fairly encouraging

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<v Speaker 1>but that's about trade. What about tourism? Haven't there been

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<v Speaker 1>very large? Tourism flows from china in recent years. Yeah

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<v Speaker 1>that's correct. The chinese made up for a very significant

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<v Speaker 1>part of regional tourism in recent years and a resumption

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<v Speaker 1>of tourism flow from china would be of course very

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<v Speaker 1>supportive for the

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<v Speaker 1>tourism dependent

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<v Speaker 1>regions growth outlook

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<v Speaker 1>spread.

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<v Speaker 1>Given that such flows have trickled to a halt since

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<v Speaker 1>the spring of 2020. The lack of upside in 2022

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<v Speaker 1>won't really matter. As the base with respect to China

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<v Speaker 1>is all but zero.

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<v Speaker 1>Now granted the china's lord on dynamic is not helpful.

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<v Speaker 1>But the key headache stemming from the high price of

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<v Speaker 1>food and energy has little to do with china. The

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<v Speaker 1>culprit being the war in Ukraine and other supply side constraints,

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<v Speaker 1>some of which were compounded by the covid crisis.

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<v Speaker 1>If anything, a slowing of chinese demand could help the

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<v Speaker 1>commodities inflation outlook for the region.

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<v Speaker 1>Additionally, headwinds are coming from rising interest rates, capital flow,

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<v Speaker 1>volatility and pressure on regional currency markets yet again, these

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<v Speaker 1>complications are a function of the U. S. Vets. Monetary

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<v Speaker 1>policy direction with the PBOC a largely passive actor.

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<v Speaker 1>So all in all we believe that between resumption of tourism,

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<v Speaker 1>even with those from china and Russia being negligible.

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<v Speaker 1>Uh secondly continued demand for exports. And thirdly moving past

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<v Speaker 1>the pandemic, there are three good factors in place that

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<v Speaker 1>tell us that asean growth could hold up this year

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<v Speaker 1>even if the outlook for china remains beset with uncertainty

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<v Speaker 1>and likely to disappoint.

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<v Speaker 1>Our 2022 real GDP growth forecast for key Asian economies

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<v Speaker 1>are as follows. We think Indonesia will grow by 4.8%

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<v Speaker 1>this year,

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<v Speaker 1>Malaysia by 5.5 Philippines. 7.5 Singapore 3.5 Thailand 3.5 in

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<v Speaker 1>Vietnam 7.0.

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<v Speaker 1>Not bad at all. Considering the circumstances, let's keep our

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<v Speaker 1>fingers crossed. There are some downside risks but hopefully this

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<v Speaker 1>commentary has shown that there are some mitigating upside risks

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<v Speaker 1>as well.

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<v Speaker 1>So that's it for our commentary today. Thanks for listening

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<v Speaker 1>Kobe time was produced by ken Del Ridge from supply studios,

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<v Speaker 1>daisy Sharma and violently provided additional assistance. All 78 episodes

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<v Speaker 1>all by googling dBS Research library

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<v Speaker 1>have a great day.

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<v Speaker 1>Mm hmm