Acceleration of US rate hikes threatens stable growth in Asia -Global inflation risk posed by supply-chain problems will remain

The Asian economy will likely record a high growth rate of + 7.1% in 2021. However, in H2 2021, the ASEAN economy deteriorated significantly as severe restrictions on activities were implemented, and the Chinese economy slowed owing to measures to curb investment. We expect the Asian economy to grow at + 5.4% in 2022, but it could become vulnerable due to weak external demand and limited support from fiscal and monetary policies.

 Supply shortages originating in Asia could continue to contribute to global inflation. In addition to semiconductor shortages, electricity shortages might cause a new supply chain issue. The worst case scenario for Asia is that supply shortages originating in Asia will fuel global inflation and accelerate the pace of monetary tightening in developed countries, notably the U.S., which will lead to policy rate hikes in Asia as countermeasures.

By country, China experienced a slowdown in H2 2021 due to power shortages, tighter restrictions on activities and adjustments in the real estate market. We expect the growth rate in 2022 to reach + 5.4%, the same level as the potential growth rate, thanks to expanded investment and the elimination of electricity shortages.

We expect India’s GDP to grow at a relatively high rate of + 6.9% in FY 2022 as the economy continues to expand due to further easing of restrictions on activities. However, U.S. policy rate hikes, the problem of nonperforming assets and the pressure to cut fiscal spending could become downside risks.

PDF link(PDF:704KB)