Asia's economies avert energy shock via fiscal buffers, AI boom

Ruchi Bhatia & Srinidhi Ragavendran / Bloomberg

Sep 03

The unexpectedly strong performances are prompting economists to upgrade growth forecasts across the region and reviving expectations that some central banks may need to tighten monetary policy.(Sept ...

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Singapore grew 5.9%, prompting the government to raise its full-year forecast. Even Thailand avoided a deeper quarterly contraction.\nThe gains were even more striking in Asia's technology powerhouses, where surging AI demand boosted exports. Taiwan posted its fastest first-half growth in about 50 years, while South Korea expanded at its strongest pace since 2020.\nThe unexpectedly strong performances are prompting economists to upgrade growth forecasts across the region and reviving expectations that some central banks may need to tighten monetary policy.\n\n\"Given Asia's high exposure to energy, this resilience has been a positive surprise,\" said Sonal Varma, chief economist for India and Asia ex-Japan at Nomura Holdings Inc.\nShe sees rate increases in Taiwan and Malaysia later this year, while policymakers in India have opened the door to higher borrowing costs. Nomura also added a 25-basis-point September hike to its Reserve Bank of Australia call after second-quarter growth beat expectations.\nAsia entered the Iran war as one of the world's most vulnerable to an energy shock. Indeed, governments went into crisis mode, assembling emergency task forces, warning citizens of unprecedented challenges and scrambling to secure fuel. They tapped petroleum reserves, rerouted Middle Eastern supplies and sourced oil from Latin America and Central Asia.\nWeaker Chinese demand also helped keep a lid on prices, economists said.\nHelping limit shortages as the Strait of Hormuz was effectively closed for business, some countries doubled down on domestic energy sources such as coal, solar and biofuels, according to Aninda Mitra, head of Asia Macro Strategy at BNY.\nIn Australia, surging fuel prices accelerated a shift among motorists to electric vehicles, with purchases surging 10.3% in the three months through June.\nAuthorities in Singapore nearly doubled support for households and businesses through cash vouchers, grants and rental assistance. Thailand reshuffled state spending and prepared additional cost-of-living relief, while India unveiled support for smaller businesses.\nThose measures \"safeguarded household balance sheets and limited a damaging pullback in demand,\" Mitra said.\nFor some countries in the region, AI-related demand has been a boon, though Standard Chartered Plc economists Jonathan Koh and Edward Lee question how long the boost can last.\nIn equities, Taiwan and South Korea have surged ahead, with their benchmark indexes up about 35% and 15%, respectively, over the past six months. Currencies of economies benefiting from the AI boom have also held up better, with the South Korean won and Chinese yuan gaining against the dollar, while the Philippine peso and Thai baht have lagged.\nHowever, another surge in energy prices or a correction in the AI investment cycle are among the biggest risks for these economies, Koh and Lee said.\nA global bond sell-off is driving up government borrowing costs, potentially making it more expensive to extend subsidies and other support while leaving central banks less room to counter any slowdown.\nAnd the path ahead isn't \"straightforward\" either, said Lavanya Venkateswaran, economist at Oversea-Chinese Banking Corp Ltd.\nGrowth has lagged in Thailand and the Philippines, where domestic headwinds outweighed the forces lifting much of Asia. China also slowed more than expected last quarter to its weakest in more than three years.\n\"Broader economy wide price pressures are building across the region. The consumer price trajectory has also been uneven, similar to growth,\" she added. \"The upshot is that monetary policy tightening remains on the cards for the region in the next 6-12 months.\"\nUploaded by Magessan Varatharaja","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":false,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"isVideo":false,"video":null,"symbols":[],"gpt_button":0,"need_auth":false,"need_login_tip":false,"code":"91000000","status":"200"}}}