Kopi Time E078 - China slowdown and implications for Asean growth

It's growing share of global output In current US dollars between 2010 and 2020 China's share of global GDP nearly doubled just astonishing. Barring a major setback china is actually on course to become the largest economy in the world before this decade is over. Although that's in aggregate terms is the per capita income would still be less than a quarter of that of the US.

Now let's look at it from another angle. But using the same data China's nominal GDP was $17.5 trillion 2021 Compared to $14.9 trillion dollars in the previous years. That means China's nominal GDP expanded on a year on year basis by $2.6 trillion dollars last year. That was 22% higher than the expansion of the US. As the largest contributor to global growth. China's 2022 outlook matters for the rest of the world, particularly Asean.

But the key question is by how much we examined associations reliance on china's growth by running crowds regressions for each Asean country for the period 2005 to 2021. So 16 17 years worth of data with three independent variables on the right hand side there are real GDP growth rates of china. Real GDP growth rates of the U. S. As well as changing oil prices. So as you can see we're trying to get three really different drivers of growth.

We run this exercise using both quarterly and annual data and find fairly similar results which is China matters for ASEAN growth and it matters more today than it did 10 years ago. But the us matters much more. The coefficient estimates vary. You can actually go through them in detail in our made 30 weekly a link for that is provided in the shows. But in all cases the US enters these regression results with a substantially greater magnitude than that of China.

The reason for this is clear, china's trade linkages with the region are deep and growing but there is still largely a function of the global trade dynamic as opposed to china's domestic demand. Many goods produced in Asean countries are intermediate inputs in the supply chain which go to china for assembly. And the linkage also works in reverse. A large chunk of the region's imports are made in china inputs for Ottawa's electrical and electronic assembly.

As long as global demand is holding up china's domestic demand. Headwinds will not cause regional trade to suffer greatly in our view. Now with respect to global demand. The US Outlook remains key. As power analysis, let's look at some data on trade data through April of this year show regional exports growth easing to around 10% on your on your basis quite strong given the wide range of adverse base effects in place and adverse factors in place. And PMS also have eased somewhat in the region.

But I would say they're kind of modest easing, not sharp easing. Considering the wide ranging headwinds in place. We find the resilient export figures fairly encouraging but that's about trade. What about tourism? Haven't there been very large? Tourism flows from china in recent years. Yeah

that's correct. The chinese made up for a very significant part of regional tourism in recent years and a resumption of tourism flow from china would be of course very supportive for the tourism dependent regions growth outlook spread. Given that such flows have trickled to a halt since the spring of 2020. The lack of upside in 2022 won't really matter. As the base with respect to China is all but zero. Now granted the china's lord on dynamic is not helpful.

But the key headache stemming from the high price of food and energy has little to do with china. The culprit being the war in Ukraine and other supply side constraints, some of which were compounded by the covid crisis. If anything, a slowing of chinese demand could help the commodities inflation outlook for the region. Additionally, headwinds are coming from rising interest rates, capital flow, volatility and pressure on regional currency markets yet again, these

complications are a function of the U. S. Vets. Monetary policy direction with the PBOC a largely passive actor. So all in all we believe that between resumption of tourism, even with those from china and Russia being negligible. Uh secondly continued demand for exports. And thirdly moving past the pandemic, there are three good factors in place that tell us that asean growth could hold up this year even if the outlook for china remains beset with uncertainty and likely to disappoint.

Our 2022 real GDP growth forecast for key Asian economies are as follows. We think Indonesia will grow by 4.8% this year, Malaysia by 5.5 Philippines. 7.5 Singapore 3.5 Thailand 3.5 in Vietnam 7.0. Not bad at all. Considering the circumstances, let's keep our fingers crossed. There are some downside risks but hopefully this commentary has shown that there are some mitigating upside risks as well.

So that's it for our commentary today. Thanks for listening Kobe time was produced by ken Del Ridge from supply studios, daisy Sharma and violently provided additional assistance. All 78 episodes of the covid time podcast can be found on major podcast platforms including apple Spotify and google. As for our research publications. Webinars you can find them all by googling dBS Research library have a great day. Mm hmm