Choose Your Poison: Growth or Inflation: December 2021

EYE ON ASIAN ECONOMIES
December 2021
Choose your poison:

Growth or inflation
As the reopening peak in US and European growth recedes we expect
that, though inflation will remain high in the first half, slowing growth
R E S E A R C H
will become an increasing concern for global markets in 2022.
China will continue its cross cycle policy, which argues against
aggressive stimulus, and its zero-Covid stance which argues against
Asian tourism. We are comfortable with Chinese growth in 2022 but
these policies mean that Asia will lack a regional demand driver to
compensate for slower growth in the US and Europe. Our Asian growth
forecasts are lower for 2H22 than 1H22 and 2023 will be lower again.
We are not forecasting recession. On the contrary our 2022 growth
forecasts are above consensus. But we expect that Asian economies will
revert to a situation similar to the mid-2010s, in which the best
economic performance was concentrated in high trend growth
E C O N O M I C S
economies driven by domestic demand rather than exports.
For most of Asia inflation either didn’t rise sharply in 2H21 or did so only
because of food and fuel price effects that will abate as global growth
slows. This means that, though we see Asian interest rates being raised in
2022, it is only to remove the accommodation introduced in 2020 not the
start of a multi-year cycle.
2022 is the transition from rapid early-cycle growth, in which inflation is

the main risk, to a slower mid-cycle period. However, it is happening at a
time when risk aversion is rising ahead of the first US rate increase. The
Fed turned from dove to hawk in 4Q21. We expect 3x rate hikes in 2022
and 2x in 1H2023. This will not kill US growth but markets will worry that
it will. The USD has one last leg higher in consequence.
A S I A N
Real GDP growth

2020 2021E 2022F 2023F
USA (3.4) 5.5 3.5 2.1
Eurozone (6.5) 5.0 4.0 2.1
Japan (4.7) 2.2 2.5 1.2
Australia (2.2) 3.9 4.1 2.7
China 2.3 8.0 5.4 5.5
Hong Kong (6.1) 7.0 4.0 2.8
India¹ (7.3) 9.5 8.0 6.0
Indonesia (2.1) 3.6 6.0 5.5
Korea (0.9) 3.8 3.1 2.8
Malaysia (5.6) 3.1 6.8 4.3
Philippines (9.6) 4.4 6.6 6.8
Singapore (5.4) 6.9 4.7 3.2
Taiwan 3.4 5.6 3.8 3.0
Thailand (6.1) 1.1 4.1 3.4
¹ Fiscal year starting April of captioned calendar year.
Source: CLSA, CEIC

Eye on Asian Economies 1Q22
Eric Fishwick Contents

Chief Economist Executive summary ......................................................................................................... 3
eric.fishwick@clsa.com Choose your poison: Growth or inflation .................................................................... 4
+44 20 7614 7171
Supply chain stress is extreme ................................................................................. 4
Anthony Nafte The inflation reaction is (so far) surprisingly modest ............................................. 6
tony.nafte@clsa.com Global growth will slow in 2022 ............................................................................. 11
+852 2600 8320
Covid to drop away as the dominant economic driver ........................................ 16
Boyang Liu US tightening to dominate the liquidity environment ......................................... 18
boyang.liu@clsa.com Debt market price action is disinflationary ........................................................... 21
+852 2600 7606 Asian growth: Asian growth to slow alongside the US and EZ ........................... 23
Indranil Sen Gupta Asian inflation: A half-hearted participant ............................................................ 26
indranil.sengupta@clsa.com Asian monetary policy: Return to pre-Covid norms (mostly) .............................. 28
+91 22 6650 5060 Asian currencies: First half weak, second half stronger ...................................... 30
Max Kaernfelt Asian forecast summary ............................................................................................... 33
max.kaernfelt@clsa.com Economic forecasts
+852 2600 8533 Australia: Robust growth justifies RBA pivot ........................................................ 34
Viola Wang China: Not a good start ........................................................................................... 36
viola.wang@clsa.com Hong Kong: Monetary tightening is underway ..................................................... 38
+852 2600 7126 India: Shallow recovery ........................................................................................... 40
Indonesia: Focusing on foreign investment .......................................................... 42
Korea: Reopening boost for 2022 but lurking Covid risk .................................... 44
Malaysia: Expect a comeback of domestic demand ............................................. 46
Philippines: Election year: Opportunity and uncertainty .................................... 48
Singapore: Gradually back to normal ..................................................................... 50
Taiwan: Slower exports, stronger consumption .................................................... 52
Thailand: Reopening but headwinds persist ......................................................... 54
Your eyes on the Asian economies
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
For important disclosures please refer to page 56.
2 eric.fishwick@clsa.com 10 December 2021

Executive summary Eye on Asian Economies 1Q22
Executive summary
Inflation was the biggest 2021 ended with inflation being the biggest concern for financial markets. However
worry of 2021, growth will in 2022 we expect that this will be overtaken by growth. The G2, which have driven
overtake it in 2022 the recovery phase of the pandemic, are past their growth peaks. We see world trade
growth slower in 2022 than 2021 and slower still in 2023.
Zero-Covid and cross cycle Vaccination programs for middle-income Asian economies reached critical mass in
policy to continue in China; autumn 2021. Some laggards remain but all of Asia should be vaccine protected by
Asia will lack a regional mid-2022. This implies growth benefits particularly for consumer spending. Our 2022
demand driver
growth forecasts are above consensus because of the “reopening boost” we have
built into them. However, this boost to consumption will be temporary and it will not
be big enough to compensate for the slower growth we see for the US and Europe.
Slower G2 growth means Critically China will retain its zero-Covid policy and this will retard Asian tourism. Nor
slower Asian growth will China stimulate aggressively to accelerate growth. Asia will lack a regional
demand driver to offset the effects of slower growth in the west.
By 2023 growth will be Although our growth forecasts are above consensus they conceal a slowdown
back to mid-cycle norms through the year. Second half growth will be slower than first and 2023 will be slower
still. This is not a recession forecast (nor is it one for the G2). But we have modelled
our expectations for 2023 on the mid-cycle years of the 2010s. These were OK but
not stellar for export-driven economies. The best returns were found in domestically
driven, high trend growth economies.
Inflation also to trend In the same vein our 2023 Asian inflation forecasts are similar to inflation in 2016-
towards mid-2010s norms 18. As Covid risks dissipate, Asian central banks will reverse the steps they introduced
in 2020. But against this background we do not see an aggressive tightening. On our
Asian tightening therefore
forecasts only India will raise rates in 2022 and 2023 by more than the Fed. China
modest
will not tighten at all in 2022.
USD to outperform ahead Just as Fed policy dominated 2021 so it will dominate 2022. Following the “Powell
of 3x US rate hikes before pivot” we advance the US rate increases we expect into 2H22. Starting in July we
end-2022 expect 3x 25bp in 2022 with a further 2x 25bp in 1H23. Anticipation of rate hikes
saw the USD outperform all Asian currencies in 2021 except the CNY. We expect the
USD to continue to outperform in the first half until the actual start of US tightening
provides an opportunity for markets to reassess.
Even with a reopening CLSA real GDP growth forecasts

boost Asian growth will %YoY 2019 2020 2021E 2022F 2023F
slow in the coming 24 US 2.3 (3.4) 5.5 3.5 2.1
months Eurozone 1.5 (6.5) 5.0 4.0 2.1
Japan 0.0 (4.7) 2.2 2.5 1.2
Australia 2.0 (2.2) 3.9 4.1 2.7

China 6.0 2.3 8.0 5.4 5.5
Hong Kong (1.7) (6.1) 7.0 4.0 2.8
India¹ 4.0 (7.3) 9.5 8.0 6.0
Indonesia 5.0 (2.1) 3.6 6.0 5.5
Korea 2.2 (0.9) 3.8 3.1 2.8
Malaysia 4.4 (5.6) 3.1 6.8 4.3
Philippines 6.1 (9.6) 4.4 6.6 6.8
Singapore 1.3 (5.4) 6.9 4.7 3.2
Taiwan 3.1 3.4 5.6 3.8 3.0
Thailand 2.3 (6.1) 1.1 4.1 3.4
1
Fiscal year starting April of captioned calendar year.
Source: CLSA, CEIC
10 December 2021 eric.fishwick@clsa.com 3

Global and regional overview Eye on Asian Economies 1Q22
Choose your poison: Growth or inflation

Inflation is the dominant The last three months have seen inflation rates spike higher in the US and Europe
concern, but growth is and a number of Asian economies. Inflation and the hardening of the Fed stance
slowing that it has generated is still seen as the primary risk facing global financial markets.
However 2022 will see growth slow. Consensus forecasts are unanimous on this
both for emerging economies and the US and the Eurozone. These economies have
been the global growth drivers in this cycle, they also dominate market risk
perceptions. The good news is that slower growth in the G2 means slower growth
of world trade and manufacturing and this should create the space within which
supply chain stress and elevated upstream prices can start to dissipate. The bad
news is that this is an occasion where markets should be careful what they wish for.
Slowing growth can worry markets just as much as rising prices.
As it slows, inflation In the 4Q20 Eye on Asian Economies (Rhyme and reasoning) we argued that growth
pressures will start to and inflation would be elevated through 2021 but that, as in the post-GFC rebound,
dissipate this period would prove temporary. Growth rates would normalise as activity
returned to long-run trends and inflation, concentrated in price inelastic upstream
products, would ease. Some of the forecasts in that report look, today, naïve.
Certainly we did not expect the scale of upstream pressure that emerged in 2021
or how rapidly the Fed would pivot from “accommodative forever” to “accelerated
taper”. Nor did we see labour markets as tight as they have subsequently become.
But the central premise – that the inflation environment is a product of exceptional
demand conditions and will change as growth becomes more normal – remains our
base case.
This is a process not an Twelve or fifteen months ago we could simplify the transition, between growth and
instantaneous event inflation being elevated to them moderating, to an artificially precise “end-2021”.
Writing at “end-2021”, the idea of an atomic transition point is obviously too
simplistic. The next six months will see inflation headlines starting to fall but only
gradually. And some aspects of inflation (for example real estate, which markets
worry about) are likely to get worse. Market concerns about inflation will not go
In the short term growth away the instant the numbers start to roll over particularly as the first US rate
and inflation worries will increase gets ever closer. And as the growth data slow, the same rate increases will
coexist appear more and more incongruous. By the second half of 2022, financial market
concern about inflation will have receded but worries about slower economic
growth will have taken over. For the first half we fear that both concerns can coexist
unhappily together.
Supply chain stress is extreme

Supply chain tensions have The last three months have seen even greater financial market focus on supply
dominated the discussion in chain stress. With justification. The fourth quarter is a seasonal peak for goods
the last 3 months shipments ahead of the key Christmas shopping season and this will amplify the
effects of extant shortages. Supplier deliveries remain subject to growing delays.
The supplier deliveries DI in Markit Economics global manufacturing PMI fell to a
record low of 34.8 in October (lower numbers denote more protracted delays):
Figure 1. The delays are worst in the US and Europe as these countries have seen
the most rapid rebound in manufacturing from the Covid first wave. However
evidence of supply chain stress in China has risen rapidly as power shortages have
reinforced parts and materials problems. Given China’s importance to the global
supply chain this suggests that the supply demand-balance for upstream products
will remain tight into 1Q22. However it should abate thereafter as the seasonal
demand surge reverses (see pp14-16).

Figure 1 Figure 2
Markit manufacturing PMIs: Supplier deliveries DI Markit manufacturing PMIs: Order backlogs DI
60 (DI) 65 (DI)
55 Global
50 China
60
US+Europe
45
Asia ex China
40 55
35
30 Asia ex China
50
25 Global
China
20
US+Europe 45
15
10
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 40
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Note: Smoothed using HP Filter for clarity Note: Smoothed using HP Filter for clarity
Source: CLSA, Markit Economics Ltd Source: CLSA, Markit Economics Ltd
Supplier delivery delays are Order backlogs have also increased sharply. However, here the pace of
up and backlogs of work deterioration has started to moderate: Figure 2. Again it is the developed West ,
have risen where manufacturing has been growing most rapidly, that sees the greatest
backlogs. Relative to long-run norms, and counter to anecdote, the situation is more
manageable in Mainland China. However, the interruptions to production and
shipments in September and October (Covid and power shortages) has started to
see order backlogs rising.
Input price DIs are close to Stress in supply chains is also clearly apparent in upstream prices. In PMI data this
record highs in most is most visible in the input price DI. As of October the input price DI for the global
countries manufacturing PMI has been above the 50 breakeven for 13 consecutive months:
Figure 3. Global average (October 74.4) is close to a record high. As with supplier
delivery delays and backlogs, the PMI data shows the situation most acute in
developed economies: Figure 4. The input price DI for the Eurozone averaged 89.5
in October. For the US and UK it was 86.9 and 87.4 respectively.
Figure 3 Figure 4
Markit manufacturing PMIs: Input prices DI Markit manufacturing PMIs: Input prices DI ranked by Oct level
100 (DI) Thailand

India
Malaysia
90 Mexico
Russia
China
80 Philippines
Vietnam
Sth Korea
Indonesia
70 Japan
Denmark
Taiwan
60 Turkey
Canada
Brazil
50 Poland
Colombia
Australia
40 Italy
USA
Asia ex China Myanmar
UK
30 Global Spain
Ireland
China France
20 Czech Rep
US+Europe Neths
Germany
10 Austria
Switz (DI)
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Greece
0 20 40 60 80 100
Note: Smoothed using HP Filter for clarity Source: CLSA, Markit Economics Ltd
Source: CLSA, Markit Economics Ltd

Cost inflation in Asia is The implied pace of input price inflation in the Asian economies is lower, but in
lower, but still problematic absolute terms still substantial particularly relative to historical norms. Upstream
price inflation is problematic in Mainland China despite the authorities’ efforts to
counter “speculative” behaviour. PPI inflation on a YoY basis is at a record high. The
implied squeeze on manufacturers’ margins has been a key factor weakening 3Q
and 4Q activity data.
The inflation reaction is (so far) surprisingly modest

Given the amount of stress Given the amount of stress revealed by PMIs in goods supply chains, the reaction
CPI inflation is surprisingly in consumer price inflation is surprisingly modest. However it is far from evenly
modest, and unevenly spread. As with supply chain stress, there is a developed versus emerging
distributed
economies split. Developed economy inflation continues and is now approaching or
exceeding 2008 peaks: Figure 5. The US, where the October CPI inflation rate
printed above 6% YoY, is the most extreme and important example but it is typical
of inflation behaviour in high-income economies. However, in emerging economies,
as Figure 5 shows, though inflation is off the trough that followed the pandemic
first wave, it remains in absolute terms lower, substantially lower moreover, than
historical norms.
Figure 5
DM inflation is testing new EM vs DM inflation (%YoY)

highs, EM inflation less so
5 (%YoY) 9
(%YoY)
4 8
3 7
2 6
1 5
0 4
(1) 3
Developed economies LHS
(2) 2
Emerging economies RHS
(3) 1
08 09 10 11 12 13 14 15 16 17 18 19 20 21
Source: CLSA, OECD
The EM-DM divergence This cross-section observation implicitly argues that inflation in the post pandemic
suggests inflation remains a period has been a demand driven phenomenon. For the 2022 outlook this
demand-driven observation is important as our forecast is that global growth in 2022 will
phenomenon
decelerate, led by a normalisation of growth in the G2.
Monetary inflation remains a non-issue

Pre-Covid money and credit The consideration of inflation as demand driven is supported by monetary figures.
trends have reasserted The post-pandemic period started with accelerated money and credit growth, as
themselves developed economy central banks grew their balance sheets, governments
underwrote business borrowing and firms had to replace revenue with leverage, but
monetary conditions have been quick to normalise. In reality the credit and
monetary surge during the first wave was a one-off not a recurrent event. As it has
dropped out of the YoY data, money and credit growth has slowed rapidly. As Figure
6 shows, broad money supply growth today has returned to its pre-Covid trends. In
most countries this means a lacklustre trend.

Figure 6
The surge in money supply G3 + China broad money supply growth (%YoY)
and credit during the 14 30
pandemic first wave has (%YoY) (%YoY)
dropped out of the growth EZ M3 LHS
12 25
data JN M3 LHS
CN M2 LHS
10
USA M2 RHS 20
8
15
6
10
4
2 5
0 0
18 19 20 21
Source: CLSA, CEIC
Only Taiwan and Korea can Figure 7 and Figure 8 shows the situation in Asia. A similar step increase followed,
credibly say they have seen 12 months later, by a step decline is visible in those countries that were able to
a persistent acceleration in maintain credit supply to the business sector. In those that were not, the lacklustre
money and credit growth in
monetary growth which preceded the pandemic has continued through it. Of the
the last two years
economies we forecast, only Taiwan and Korea can credibly say they have seen a
persistent acceleration in money and credit growth in the last two years. Elsewhere
the behaviour of broad money supply suggests that credit multipliers are still
ineffective at intermediating reserve money into the real economy. Inflation
remains a real economy phenomenon because the case for monetary inflation
remains weak.
Figure 7 Figure 8
AxJ high income broad money supply growth (%YoY) AxJ low and middle income broad money supply growth (%YoY)
16% (%YoY) Australia 18% (%YoY)
Indonesia
14% Hong Kong 16% Malaysia
Taiwan Philippines
14%
12% Korea Thailand
12% India
10% Singapore
10%
8%
8%
6%
6%
4%
4%
2% 2%
0% 0%
18 19 20 21 18 19 20 21
Source: CLSA, CEIC Source: CLSA, CEIC
Given supply chain stress, upstream price moves are not extreme
The rise in commodity Despite the overwhelming majority of firms that report rising input costs revealed
prices is large but not by PMIs, actual commodity price movements have been, thus far, similar to previous
unprecedented commodity price cycles. Figure 9 shows the CRB index (charted on a log scale so
percentage moves can be eyeballed). The increase from the 2Q20 trough has been
110%, this is greater than the two-year commodity price rally which followed the
GFC (80% from 2009 to 2011) but is not in a different ballpark given the short
duration of the 2020 dip. In this it is unlike Figure 1 and Figure 2.

Figure 9
From the 2020 trough the CRB index

CRB index is up 110% (93%
from the April 2020 (log scale)
average)
400
200
100
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Source: CLSA, Bloomberg
We are sceptical that the The focus on reducing global carbon emissions has created an additional concern for
push towards carbon financial markets. This is that capacity expansion in fossil fuels will be constrained by
neutrality will limit fossil political reasons. Certainly the preference for natural gas over coal has contributed
fuel supply
to that commodity rising in price relative to other fossil fuels. However we are
sceptical that the environment argument, i.e. that the supply elasticity of energy will
be lower than in previous cycles, will prove correct. The incumbent producers have
ample capacity for expansion and risk being left with a stranded asset if they do not
exploit current elevated prices. It is noteworthy that the International Energy
Authority, in its October report, argued that the “The world oil market remains tight by
all measures, but a reprieve from the price rally could be on the horizon,” and “Production
in the U.S. is ramping up in tandem with stronger oil prices.”
And slower world trade growth implies pressure will ease

Upstream price cycles Any price cycle in price inelastic upstream products will eventually prove self-
eventually prove self- correcting. Demand growth, relative to supply, raises price creating supernormal
correcting profits for suppliers incentivising supply to increase. In the last cycle gestation lags
meant that commodity supply was increasing at the point when the growth of
demand started to normalise after the rebound from the GFC trough. We expect that
this will also characterise the primary product pricing environment in 2022 and 2023.
A stable relationship We discuss our outlook for global demand growth in pp11-15. As an introduction it
between world trade is worth considering how tight the relationship between global trade and
growth and commodity commodity prices has been through this cycle. A comparison over the last 20 years
price inflation
suggests that the main difference between the rebound from the pandemic first
wave and previous cycles is simply one of pace rather than growth and inflation
decoupling from each other. Figure 10 shows the year-on-year change in world
trade volumes and the year-on-year change in the CRB index. Over long periods of
time the two data series track together. This suggests that demand has consistently
been the factor driving commodity prices and/or that the elasticity of supply has
been reasonably constant over time (and still is). The relationship between
commodity price inflation and trade volume growth has been tighter in the period
since 2017 than in previous cycles. We attribute this to China’s move away from
aggressive investment-led, countercyclical policy which started around this time
and which we expect to continue.

Figure 10
Which has been tighter in CRB index vs world trade growth

the period in which China
has retreated from 70 (%YoY 3mma) (%YoY 3mma) 24
countercyclical stimulus 60 20
CRB index LHS
50
World trade volume RHS 16
40
30 12
20 8
10
4
0
(10) 0
(20) (4)
(30)
(8)
(40)
(50) (12)
(60) (16)
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Source: CLSA, Bloomberg, cpb.nl
We expect world trade Historically world trade growth around 3% YoY has been associated with stable
growth to slow to around commodity prices. Though we expect world trade volume growth to slow in 2022,
3% YoY by end-2022
it will only approach these levels in late 2022. To this however, has to be added a
rise in risk aversion that we expect as US rate increases approach (see pp18-23).
We therefore expect commodity prices to be lower on a 12 month horizon. The bulk
of this move will be in the second half of 2022 when both risk appetite and global
trade growth will be visibly lower. Figure 11 summarises the commodity price
assumptions that we have fed into our Asian inflation models.
Figure 11
Commodity price forecasts

Period-end Annual Coming 12 months by quarter
2019 2020 2021F 2022F 2023F 1Q22F 2Q22F 3Q22F 4Q22F
Oil (Brent) (p/e) 66.0 51.8 80.0 70.0 60.0 75.0 75.0 72.0 70.0
Oil (Brent) (average) 64.2 46.1 71.2 72.4 65.0 77.5 75.0 73.5 71.0
CRB index (p/e) 185.8 172.3 230.0 185.0 160.0 220.0 200.0 190.0 185.0
FAO food index (p/e) 101.0 108.6 133.0 110.0 100.0 125.0 115.0 112.0 110.0
Gold (p/e) 1,517 1,873 1,850 1,500 1,400 1,850 1,800 1,650 1,500
Add in tighter global Oil was knocked back by the discovery of the Omicron variant. However, early signs
liquidity this implies an are that markets remain basically optimistic that reopening will continue. At time of
abatement of commodity writing commodity prices have firmed up again. However, even before Omicron, oil
price inflation
had started to struggle above USD80/bbl. In part this reflects financial market
caution, however it is also important to understand that global manufacturing
growth is already substantially off its peak in seasonally adjusted MoM terms. The
fourth quarter encompasses the seasonal peak in international trade in durable
goods but we suspect that this has occurred one to two months earlier than usual
because of concerns about supplier delivery delays. Shipping rates are still very
elevated but have started to decline: Figure 12 and 13. The containerised rate
decline is thus far moderate, however we expect it to continue in 2022 as
weakening final demand growth, a period of retail and wholesale destocking in
western economies, and the seasonal trough in durable goods shipments combine.

Figure 12 Figure 13
Baltic dry freight index Container rates
6,000 (04/01/85 16,000 (USD)

=1000)
14,000
5,000
Shanghai to Los Angeles
12,000
Shanghai to Rotterdam
4,000
10,000 Rotterdam to New York
3,000 8,000 Composite index (USD price 40 ft container)
6,000
2,000
4,000
1,000
2,000
0 0
15 16 17 18 19 20 21 15 16 17 18 19 20 21
Source: CLSA, Bloomberg Source: CLSA, Bloomberg
Second round effects cannot be discounted

So long as inflation is Our focus is on upstream prices, as this is where inflationary pressures have been
confined to upstream most powerful and most widespread. As we note above, such price cycles are
sectors it will be transitory inevitably finite in duration unless they generate second-round effects which raise
the price of goods and services more generally and which trigger increased wage
demands. It is this first round effect, with limited pass through into broader prices,
which justifies central banks description of current elevated inflation rates as
“transitory”.
US inflation is starting to Increasingly however, there is evidence that inflation is starting to move beyond
move outside of supply the narrow selection of goods for which supply has, in the post-pandemic period,
constrained products been inelastic. Figure 14 shows the contribution to the MoM change in US CPI by
various product groups. The yellow/orange bars are those products which propelled
inflation in the “peak reopening” period (leisure travel, hotel rates, eating out and
air fares) and/or supply has proven unable to keep up with demand (new and used
car prices, auto parts, car rental and lease rates and insurance) and fuels.
Numerically these categories are responsible for most of the acceleration in
inflation. All are unlikely to rise as rapidly in 2022 as they have in 2021. And as their
price rises moderate in 2022, inflation in aggregate will start to fall.
General price rises were at However, the blue bars are also increasing. These represent everything else with
a 2.1% saar in the three food and drink consumed at home and housing (rent and imputed rent of owner-
months to October
occupied primary dwellings) specifically identified. In the three months to October
housing, (eat at home) food and “other” prices rose at an annualised rate of 2.1%. If
these categories continue to accelerate, falling (or even negative) contributions
from cars and fuel will not satisfy the hawks on the FOMC.
This will worry the hawks It is because of the increasing breadth of prices moving rather than the simple pace
on the FOMC, even if of inflation that the Fed has become more hawkish in the last quarter. Our central
easing supply constraints
case is that as global demand growth normalises upstream inflationary pressures
allows aggregate inflation
to fall will fall sufficiently to take inflation towards 2% by end-2022 in both the US and
Europe. Given the numerical importance of “transitory” price effects however, the
chance of headline inflation being higher in 2022 than 2021 is low.

Figure 14 Figure 15
Contribution to US MoM CPI change (ppts) Cleveland Fed underlying inflation measures
1.00% 7.0%
(%MoM & ppt) (% chg on
0.75% 3mths saar)
6.0% Trimmed mean
0.50%
5.0%
0.25%
Weighted median
0.00% 4.0%
-0.25% 3.0%
Housing
-0.50% Others
Food at home 2.0%
-0.75% Leisure travel
Fuels 1.0%
-1.00% Autos
-1.25% 0.0%
Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 18 19 20 21
Source: CLSA, CEIC Source: CLSA, Cleveland Fed
Global growth will slow in 2022

No recession forecast, but Our expectation that inflation is mainly the direct effect of the accelerated pace of
we do see slower the post-pandemic first wave rebound and therefore that inflationary risk will drop
manufacturing driven away in 2022 comes from our conviction that the global growth recovery has
growth
started to normalise. In no economy do we expect growth in 2022 to fall below
trend, but neither will it be propelled by the same pace of manufacturing and trade
growth seen in 2021. For Asia’s trade-driven export-manufacturing economies
growth will be visibly decelerating in 2H22 with 2023 forecast to be significantly
slower.
This cycle has been driven by the G2

China has not led this cycle The recovery from the GFC was clearly driven by China. Its manufacturing PMI
bounced first, pulled Asia along with it, and the recovery in developed economies
occurred only 6-9 months later: Figure 16. This cycle has been very different. Apart
from a short period, when the west was entering the pandemic first wave while
China exited from it, PMI data have signalled a more rapid recovery in trade and
manufacturing growth in the G2 than in China. Since 4Q20, the point at which
China, under the precepts of “cross cycle” policy, started to withdraw stimulus, the
implied growth differential between the G2 and China has widened.
Figure 16
The manufacturing recovery Markit manufacturing PMIs

has been centred on the G2
65 (DI)
Asia ex China
China
60
US+EU average
55
50
45
40
07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Source: CLSA, Markit Economics Ltd

China will not provide an China’s focus on cross cycle policy has meant that, from a global growth
offset to slower G2 growth perspective, it has played a relatively passive role in the post-pandemic trade
in 2022 rebound. It has participated in it and benefited from it (China’s export growth has
been good, but other Asian economies have seen even stronger trade performance),
however, it has not been a global growth driver. We expect this to continue.
Economic management ahead of the twentieth National Congress of the CCP in
autumn is likely to become more growth focused. However, no major deviation from
cross cycle policy or the management of real estate within a long-term framework
should be expected. China will grow around trend in 2022, only fractionally faster
than its sequential growth rate in 2H21. It will not, therefore, act as an offset for
the slower growth we anticipate in the G2.
And the G2 are now past their growth peak

The growth peak has passed As Figure 17 shows, measured using Markit Economics’ composite PMI, sequential
in the US and Europe growth in the US and Europe is already well past its peak. In the US the growth
peak was the start of 2Q, with 3Q growth already substantially weaker. In Europe
the growth peak was right at the end of the second quarter. Third quarter growth
therefore remained robust, at 2.2% QoQ sa (2Q 2.1% QoQ sa). However the fourth
quarter will be weaker even without taking into account the need to impose “circuit
breaker” lockdowns on the Delta variant ahead of Christmas.
The impact of the Delta variant on consumers added to 3Q weakness in the US even
though lockdowns were avoided. Growth in the fourth quarter, therefore, should be
better. But it will not re-attain the exceptionally rapid first half growth rates. These
occurred when top-decile manufacturing growth was reinforced by the rapid
reversion of service activity to long-run norms as the Covid restrictions were retired.
Figure 17 Figure 18
Markit composite PMIs: US and EZ Markit composite PMIs: CN

65 Global 65 Global
(DI) (DI)
US+EZ China
60 60
55 55
50 50
45 45
40 40
15 16 17 18 19 20 21 15 16 17 18 19 20 21
Source: CLSA, Markit Economics Ltd Source: CLSA, Markit Economics Ltd
For 2022 we assume the US For both the US and Europe we anticipate that 2022 will be a relatively normal year.
and EU will have a normal Once Christmas is past, European governments are likely to become more risk
year. No new lockdowns tolerant again as public opinion has swung in favour of tolerating the pandemic if
but no income support lockdowns are required to contain it. Our 2022 forecasts do not envisage a future
packages either pandemic wave that requires the reimposition of harsh lockdowns. As important we
assume that governments will continue to retire the measures put in place to
cushion households and businesses from the worst effects of the pandemic. The
most visible of these, the transfer payments to households, are already being
removed. During 2022 any last remaining buffers, for example the protection
offered to commercial and residential tenants or interest holidays or subsidies, will
also be retired.

EM acceleration cannot With China’s sequential growth only increasing marginally from current levels (we
compensate for weaker DM do not envisage the Markit Economics’ composite PMI will exceed 53.0 in the
demand growth coming 12 months: Figure 18) slower growth in the US and Europe (which
collectively provide one third of global GDP) implies slower world growth. As we
discuss below (see pp16-18) we build into our forecasts a reopening bounce in
Asian economies as vaccination allows governments and households to become
more tolerant of the pandemic. But, critically, this forecast does not include
Mainland China. And numerically (therefore) this bounce is not enough to
compensate for slower G2 growth both because the economies concerned
command too small a weight in global GDP and because household and corporate
income protection policies have been less substantial.
Don’t neglect fiscal drag

Fiscal policy is being Mention of transfer payments being retired flags a more general issue for developed
tightened economy growth in 2022. That is that fiscal policy is being tightened. The IMF has
calculated that current budget plans in the Eurozone equate to a discretionary fiscal
tightening equivalent to 2.9% of GDP. In the UK the fiscal drag is even higher,
estimated at 4.6% of GDP.
Whereas in 2021 it was The current market narrative concerning the US focuses on the inflation risk from
largely neutral the White House’s “Build Back Better” program. However the Hutchins Centre,
regarded as the authority on calculating fiscal impact in the US, estimates that state,
local and federal government budget plans imply a fiscal drag equivalent to 2.4% of
GDP in 2022 compared with fiscal policy being neutral in its impact on growth in
2021: Figure 19.
Figure 19
The IMF estimates the EZ Fiscal boost/(drag) % GDP

fiscal drag at 2.9% of GDP
in 2022 6
(%GDP)
5
All advanced econonomies
4
The Hutchins Center Eurozone
estimates US fiscal drag at 3 USA
2.4% of GDP
2
1
0
(1)
(2)
(3)
(4)
13 14 15 16 17 18 19 20 21 22 23
Note: Hutchins Center fiscal impact measure for USA, change in IMF estimated cyclically adjusted primary balance
elsewhere
Source: CLSA, IMF, Brookings.edu
Transfer payments were Fiscal drag in advanced economies is something that is underappreciated by
important in supporting financial markets which are more worried about the removal of monetary
growth, their removal will accommodation. However, the aggressive support measures were instrumental in
squeeze current spending
supporting the surge in durable goods spending that supported the rebound in
world trade. And the strength of household balance sheets accelerated the
“reopening” boost in the US and Europe (by boosting demand but also preventing
business failures). The removal of transfer payments is therefore an important

consideration for the growth outlook. Accumulated savings mean that it is possible
that “pent up demand” maintains household spending in the absence of income
support payments. However, it appears that current spending (even on durables)
remains tied to current income suggesting that the fiscal tightening will hit
consumer spending (savings accrued in lockdown are more likely visible in asset and
real estate inflation).
Asian budgets for 2022 are In Asia government budgets for 2022 are more neutral (it is the change in deficit or
more neutral primary balance that is important for growth, not its level). In many countries the
budgeting process for 2022 occurred in the middle of the Delta variant Covid wave.
However, fiscal tightening should be expected for 2023 (budgets typically set in
We expect that markets and
rating agencies will want 2H22). Emerging economies have to be more conservative than developed
the 2023 deficit to be economies in how they manage fiscal and monetary policy. Thus far there is little
reduced evidence that country risk premia have risen despite extreme monetary and fiscal
stimulus. Increasingly however, ratings agencies are expressing concern about debt
and deficits in the medium term. We expect that market risk aversion will rise as US
The chance of EM fiscal monetary policy is tightened (see pp18-23) and it would be an heroic assumption
policy being expansionary
to counter DM’s
that this accommodative attitude towards weak-institution EM deficits will
contraction is low continue. Certainly the probability that local fiscal stimulus can offset the effects of
tighter policy in the economies that have thus far driven this cycle is low.
Plus spending is rebalancing from goods to services

Durables goods spending In addition to GDP and PCE growth slowing, 2021 saw a rebalancing of developed
was boosted and is now economy consumer spending from goods, which had been boosted by lockdown, to
normalising services. Figure 20 shows US household spending on durable goods over time and
shows the exceptional surge in spending that occurred during lockdown. Durables
spending is off its peak; however it is still above the long run trend.
Figure 20 Figure 21
Spending on durable goods relative to pre-Covid trend Contribution to US PCE growth (2012p %chg on 3mths saar)
2.5 (USDtn saar) 35% (% QoQ saar) Autos
US consumer spending on durable goods Durable goods
30%
2010-19 trend Non-durable goods
2.0 US consumer spending on durable goods ex autos 25% Services
2010-19 trend 20% Total
1.5 15%
10%
1.0 5%
0%
0.5 -5%
-10%
0.0 -15%
10 11 12 13 14 15 16 17 18 19 20 21 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Falling demand for durables Excluding autos, where new purchases have been restrained by a lack of choice,
would be a direct drag on there is further weakness to US durable goods demand in the pipeline. As durables
world trade growth are an important part of global finished goods trade, this is an additional argument
in favour of world trade growth slowing.
A replacement cycle of 4-5 It is likely that the pandemic has caused a structural increase in the propensity to
years existed before the purchase durable goods in the US and Europe (for example if there has been a
pandemic permanent increase in the proportion of employees that work from home). However
pre-pandemic durable goods spending move in cycles whose periodicity suggested

a replacement cycle of 4-5 years duration. The historic replacement cycle will have
been reset by the pandemic. However, there is no reason why its periodicity should
be much shorter or to think that the mechanism behind it has changed.
Replacement generates a regular cadence in durable goods demand because it is
based on the depreciation/age of the asset.
The durable goods stock is If this is the case then the peak in durables spending in 1Q21 implies suppressed
young implying weak demand in 2022 and 1H23 even if the trend propensity to spend on durables has
replacement demand in risen. A young durable goods stock means that replacement demand will be weak.
2022 and 2023
This headwind is likely to persist into 2023.
Autos are likely the Autos are a credible exception. The shortage of auto parts has increased delays and
exception reduced choice as well as raised the price for new cars. Thus, demand is likely to
reappear as supply loosens. However, as Figure 21 shows, US durable goods
spending is now falling in level terms both including and excluding autos. We expect
durable goods spending to weaken in 2022 with recovery, as replacement restarts,
pushed out to late 2023. For autos 2022 is likely to be a much stronger year.
Retailing patterns suggest Figure 20 and 21 are drawn using US figures because detailed data on the
the same thing is happening composition of consumer spending is lagged. However the same patterns visible
in Europe in the US figures are happening in Europe. Anecdotal evidence is supportive. We
can say that retailing patterns have started to normalise. After rapid growth in
2020 the sales of internet retailers in the EU turned negative on a YoY basis in
June: Figure 22.
Figure 22 Figure 23
EU retail sales volume indices (swda %YoY) China’s exports to US, Europe and ASEAN
200% (%YoY) 55
USDbn pcm)
50
150%
45
100% 40
35
50%
30
0% 25 EU
20 USA
-50% Internet retailers
15 ASEAN
Total retail sales
-100% 10
19 20 21 17 18 19 20 21
Note: Seasonally and working days adjusted (swda). Source: CLSA, CEIC Source: CLSA, CEIC
Weaker durable goods Spending on durable goods is a key driver of global (and particularly Asian) trade.
demand will hit world trade Reduced spending on durables implies slower growth in world trade. This is
immediately after Christmas presently being disguised in the trade data by precautionary inventory building and
advance and double ordering ahead of the key Christmas shopping period. Given
its dominance in global supply chains for consumer durables this is most visible in
China’s export data. It has boosted shipments to the US (first) and EU (second):
Figure 23. However accumulation of inventory of durable goods in consuming
economies is unlikely to persist after the Christmas ordering period is over given
weaker domestic final sales. MoM growth in upstream sectors geared into the
global consumer electronics supply chains have already started to weaken and
China’s exports to the US declined slightly in October. Figures 24 and 25 show the
profile we expect for world trade in seasonally adjusted terms.

World trade growth to The 2021 underperformance of 3Q trade outcomes relative to our forecast reflects
halve in 2022 and to have the impact of the Delta variant on EM growth. This should not be recurrent (see
dropped to 3% by year-end pp16-18) and the 2021 weakness therefore generates a temporary boost to YoY
trade growth in mid-2022. Even so we expect 2022 world trade volume growth to
average 5.5% compared with 11.2% in 2021. More importantly world trade growth
will have dropped to 3% by 4Q22. It is this slowdown, reinforced by tightening
global liquidity, which lies behind our view that upstream price pressures will drop
away during 2022.
Figure 24 Figure 25
Actual and assumed world trade volume (sa level) Actual and assumed world trade volume (% YoY growth)
140 (May 15% (%YoY) Apr 2021: +24.8% YoY
2020=100)
130 Actual
10%
120 Forecast
110 5%
100 Covid
0%
GFC
90
Forecast
80 -5% May 2020: -16.9% YoY
16 17 18 19 20 21 22 16 17 18 19 20 21 22 23
Source: CLSA, cpb.nl Source: CLSA, cpb.nl
Covid to drop away as the dominant economic driver

Omicron raises the risks but Covid has dominated the economic environment for two years. The discovery of
we do not think it negates the Omicron strain reminds that vaccination does not completely remove the
the benefits of vaccination pandemic as an economic risk. However, early signs are that the new variant does
not negate the benefits of vaccination in reducing deaths and severe disease. In
turn this allows governments to become less risk averse in how they manage the
pandemic, tolerating a higher number of Covid cases in order to avoid the economic
losses from lockdowns and quarantine requirements.
In allowing the virus to be At time of writing the combination of an increase in cases from the Delta variant
treated as endemic and the threat from Omicron has caused Covid restrictions to be reintroduced in
Europe. US domestic policy, thus far, has shown less reaction as have for the most
part governments in newly-vaccinated Asia. However, travel restrictions have been
However we do expect tightened. These are mainly targeted at Southern Africa, the origins of the new
travel restrictions to be
strain, however as the new variant becomes dominant globally, travel restrictions
reintroduced
will tighten further until governments have time to calibrate their expectations for
vaccine efficacy and therefore the potential for health services to be overwhelmed.
Public opinion has swung Lockdown fatigue is an increasing issue. Governments are likely to prove risk averse
against blanket lockdowns ahead of the Christmas season (and Omicron is a deus ex machina), but the bar for
extending restrictions into the New Year, as in 2021, is now high. Public opinion
has, for months, swung away from prioritising fighting the pandemic above all else
We expect that vaccinated to a more balanced view that it should be controlled but not at the expense of the
countries will be kept
economy or personal freedoms. For lower income economies, for whom socialising
“open” for most of 2022
the economic losses from lockdowns has not been a viable option, imposing
lockdowns on a newly vaccinated population will be a last not first resort. Our
central case therefore is that most vaccinated countries will remain “open” for most
of 2022. Governments will continue to pressure vaccine-hesitant groups to increase
take-up. Even on these assumptions growth will be more moderate. Economies do
not get to “reopen twice”; PCE growth will be slower in 2022 than 2021.

Middle and high income Though Asia started slowly, in high and middle income economies vaccination
Asian economies achieved achieved “critical mass” levels at the end of 3Q21. While watching Omicron we
vaccination critical mass at therefore include these economies in those that will take a more risk tolerant
end-3Q21
approach to managing the pandemic. We have built a small “reopening boost”, as
improving consumer confidence recouples household spending on services to
income, into our forecasts for early 2022.
Figure 26
Low income Asian Asian vaccination status

economies are still lagging 200
but will achieve critical (per 100 popn) Singapore
UK
mass by mid-2022 180 Australia
China China
160 Hong_Kong Korea
Malaysia
India Japan
140 Indonesia Australia
Japan
USA
Korea
120 Malaysia
Hong Kong
Thailand
Philippines Taiwan
100 Singapore
Taiwan
80 Thailand India
US Indonesia
60 Philippines
40
20
0
Jan-21 Apr-21 Jul-21 Oct-21
Source: CLSA, CEIC
No more lockdowns will As Figure 26 shows, vaccination progress in Asia’s low income economies is still
allow consumer confidence lagging. But these countries too will achieve vaccination critical mass by mid-2022.
to normalise We expect that their governments will move away from lockdowns as quickly as
possible given their economic cost. No more lockdowns is not only important in
that it removes the artificial capacity reduction in service activity, it is also
important in that it allows the pandemic to recede as a dominant factor driving
consumer confidence. Our forecasts typically have Asian consumption considerably
stronger in 2022 than 2021 even though growth drivers more directly associated
with international trade will be weakening as the year progresses.
Boosters will be needed in Because full vaccination occurred relatively late in Asia, we do not see an imminent
2H22, we assume that they need for booster programs other than in Singapore, Hong Kong and Mainland China.
are given but there is a risk However, booster shots will be needed universally in 2H22. The logistical strain on
health care systems from Covid will therefore persist. We assume in our 2022 and
2023 forecasts that governments are up to the task. But this remains a risk
particularly in lower income economies.
But China is the exception

China’s zero-Covid strategy The exception to ‘Asia treat Covid as endemic’ is China. China’s zero tolerance
has been successfully approach to Covid has been successful in containing outbreaks of the virus while
implemented but at an case numbers are low. Locally transmitted cases have been quickly contained:
economic cost
Figure 27. But this has happened with significant economic cost, flare-ups have
been frequent and containment measures have contributed to economic weakness
that is visible in China’s monthly economic data. The relatively frequent imposition
of restrictions is working against the normalisation of consumer attitudes. Over
time China’s retail sales, which are the most visible indication of this and at the
moment lag other economic data, will catch up. But the process is being slowed by
the zero-Covid strategy.

Figure 27 Figure 28
China: Locally transmitted Covid cases (new per day) China: Imported Covid cases (new per day)
(Cases per 60 (Cases per

140 day) day)
50
120
100 40
80
30
60
20
40
10
20
0 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
China will not move away We see little chance that China will move towards treating the virus as endemic in
from a zero-Covid target. 2022. Between the Winter Olympics in 1Q and the National Congress of the CCP
The region’s tourism will in autumn, there will be little appetite to abandon a risk averse approach to the
stay weak in consequence
pandemic. Vaccination is designed to reduce mortality not transmission, China will
face a continual external threat from imported cases. This threat rises as Omicron
becomes dominant and as vaccination allows other Asian economies to treat the
disease as endemic. China will face more imported cases in 2022 not fewer (Figure
28). We therefore assume that China’s quarantine requirements, effectively closing
its borders to tourism and most business travel, will therefore remain in place. Given
the importance of Chinese outbound tourism to the region, 2022 will be another
weak year for tourism receipts across the region.
US tightening to dominate the liquidity environment

QE4 started to be tapered The Federal Reserve started to reduce its purchase rate of Treasuries and Asset
from mid-November Backed Securities from mid-November. At time of writing the taper is running at a
rate of USD15bn per month meaning that QE4 will end in July. This already is a
substantially more rapid removal of accommodation than in 2014 when the Fed
tapered QE3: Figure 29.
Figure 29
The current run rate is Actual & projected Fed balance sheet (USDtn)
already faster than in 2014
(USDtn) (USDtn)
10 1.2
Other assets
9 Conventional Treasuries
It will be accelerated TIPS
1.0
further at the December 8
Agency+MBS
FOMC meeting 7 Monthly change in balance sheet (RHS) 0.8
6
0.6
5
0.4
4
3 0.2
2
0.0
1
0 -0.2
13 14 15 16 17 18 19 20 21 22

The Powell pivot

Powell’s view has aligned However, we expect that the pace will be accelerated at the December FOMC
with the hawks; policy meeting (just after the Eye on Asian Economies is published). Speaking to the Senate
needs to be more Banking, Housing and Urban Affairs committee in late November Powell indicated
aggressive to contain
inflation second round that his view had become much more hawkish concerning the risk that inflation
effects become entrenched in household and business behaviour. The importance of this
shift is heightened because it occurred just after the discovery of the Omicron
coronavirus variant. As Omicron clearly raises economic risks, the “Powell pivot”
indicates that the Fed now sees inflation risk as greater than growth risk.
We expect the taper to be Powell indicated that the December FOMC meeting would review the pace of the
accelerated to end in May taper with a view to increasing it. We expect that the pace will be raised to around
USD18bn per month (from USD15bn per month). This would be sufficient to bring
the program to an end in May.
We expect 3x 25bp rate In line with the last policy cycle we expect that the Fed will make no effort to
increases in 2022 and 2x shrink its balance sheet until late in the policy cycle. However, unlike 2014-2015
25bp in 1H23 we expect that transition from taper to tightening will be quick. We expect that
the Fed will start to raise the Fed funds rate from the 27 July FOMC meeting. In
total we envisage 3x 25bp rate increases in 2022 and a further 2x 25bp rate
increases in 1H2023.
The Fed will then pause as At this point, with the Fed funds rate in a 1.25-1.50% corridor, we expect that the
it will be wary of over Fed will pause. This forecast assumes that our analysis of the drivers of inflation are
tightening correct and that inflation expectation are falling by mid-2023. It is worth
remembering that for most of the pre-pandemic decade the Fed was struggling with
too low inflation expectations not too high. It will be wary of tightening past the
point at which it judges the risk from the current inflation shock to be contained.
The precedent is that risk aversion will rise

The above rate profile is slightly more than presently priced into Fed funds futures
(at time of writing Bloomberg’s “WIRP” calculator shows 2.7x 25bp tightenings by
the December 2022 FOMC meeting).
Markets always worry that Financial conditions have just started to tighten Our central case is that financial
Fed tightening is too early conditions will tighten further as market risk aversion is squeezed by the
or too aggressive combination of sticky inflation (in the first half), slower growth (all year) and
worries that the Fed’s elevated pace will be more than the economy or the equity
markets can stand. Barring an unforeseen shift in the economic environment,
interest rate expectations are almost certain to rise above our forecast path in
coming weeks. And in this economist’s experience, financial markets always worry
that tightening will prove excessive at the start of the rate cycle. They are
invariably proven incorrect, but this fact only becomes visible after the process of
raising rates has commenced.
This mechanism tightened financial conditions as the Fed approached the first rate
increase in December 2015: Figure 30. We see no reason why this should not be
repeated. The fact that rates will again be raised in a slower economic growth
environment supports the idea that rising risk aversion in markets repeats.

Figure 30
Financial stress indicators St Louis Fed financial stress index

worsened until the Fed had Taper indicated
2.0 (st dev from normal) (%) 3.0
actually started to raise Taper executed
rates in the last cycle St Louis Fed financial conditions index LHS
1.5 Fed funds target rate RHS 2.5
1.0
2.0
0.5
1.5
0.0
1.0
-0.5
0.5
-1.0
-1.5 0.0
11 12 13 14 15 16 17 18 19 20 21
This is an additional factor that argues against commodity price rises

Commodities were U sing the experience of the last US rate cycle provides an additional argument
unfavoured assets in the against commodity prices rising further. Commodities were unfavoured assets in
last tightening cycle the approach to the December 2015 rate increase: Figure 31. It was only after the
Fed had started to raise rates that risk appetite could start to recover and
commodity prices stabilise. On our central case forecast this is 2H22 however, by
this point, evidence of weaker manufacturing growth and the anticipation that 2023
will see further slowdown will be visible. We see commodities lower, not higher in
2023 as growth overtakes tightening as the primary market concern. Figure 31
They only found stability St Louis Fed financial stress index vs CRB index
after rates started to 400 (st dev from normal) 2.0
(CRB index) Taper indicated
increase Taper executed
Rates rising 1.5
350 CRB index LHS
St Louis Fed financial conditions index RHS
1.0
300
0.5
250
0.0
200
-0.5
150
-1.0
100 -1.5
10 11 12 13 14 15 16 17 18 19 20 21
Rising risk aversion is USD positive and ADXY negative

USD outperforms during The USD’s role as the reserve currency means that it is the dominant funding
rising risk aversion and currency for world trade and the global financial markets. Rising risk aversion
rising rates therefore is associated with USD appreciation: Figure 32. In this cycle the rise in
US rates, which is likely to be more aggressive than in other developed economies,
is also USD positive.

Figure 32 Figure 33
Trade weighted USD index Asian currency index
(01/06=100) Taper executed (%) (ADXY) Taper indicated (%)

125 Taper indicated 3.0 120 Taper executed 3.0
Fed broad trade weighted USD index LHS ADXY LHS
Fed funds target rate RHS Fed funds target rate RHS
120
2.5 2.5
115 115
110 2.0 2.0

110
105
1.5 1.5
100
105
95 1.0 1.0
90 100
0.5 0.5
85
80 0.0 95 0.0
13 14 15 16 17 18 19 13 14 15 16 17 18 19
Asian currencies weakening Our Asian currency forecasts are based around the view that this repeats. Asian
ahead of December 2015 currencies underperformed the USD through the taper of QE3 in 2014 and the
provides a precedent first rate increase in December 2015. Typically they only stabilised and started to
outperform the USD in late 2016: Figure 33 shows the Asian currency index
(ADXY).
On a 12-month view we We present a summary of our forecasts for Asian currencies in 2022 and 2023 on
would be short Asian pp30-32. However they are based on the view that this process, rising risk aversion
currencies supports USD outperformance, repeats. In particular the period in the first half of
2022, when rate expectations rise but are not anchored by the pace at which rate
hikes are actually delivered, is likely to prove difficult for Asian currencies. There is
no reason to expect a currency rout. Reserve growth by most Asian central banks
has been good in recent years but on a six month view we would be short Asian
currencies versus the USD. The second half of 2022 should see currencies start to
recover, but in many cases gains will be faltering. The slower global growth outlook
we have for 2023 is not one that favours the majority of Asian economies.
Debt market price action is disinflationary

The yield curve discounts 3- Implied in the shape of the yield curve is a path for future short rates at which the
month rates topping out return on holding long dated assets is equivalent to the return from holding money
around 2.25%
market instruments (or the cost of funding short). Arbitrage means that this
breakeven forward path is also indicative of the expected path of short rates.
The forward trajectory for 3-month rates derived from the Treasury curve is shown
in Figure 34. It suggests that the bond market expects rates to be raised quickly in
the coming few years (in line with Bloomberg’s “WIRP”) but that tightening is
expected to end with 3-month interbank rates around 2.25%.

Figure 34 Figure 35
3-month rate forward curve Fed funds target rate and 3-month USD interbank rates (%)
2.5 Breakeven 3mth forward curve 3.0 (%)
(%)
2.0 2.5 Fed funds target rate (ceiling)
3-month interbank rates

1.5 2.0
1.0 1.5
0.5 1.0
0.0 0.5
(Years forward)
-0.5 0.0
0 1 2 3 4 5 6 7 8 9 10 13 14 15 16 17 18 19 20 21
Note: Calculated from Bloomberg fair value Treasury strip curve Source: CLSA, Bloomberg
This is a flatter tightening This is a flatter rate cycle than that which followed the GFC. Then the Fed funds
cycle than occurred in rate reached 2.5% with 3-month money market rates around 25bp higher before
2015-19 the anticipation of rate cuts took over: Figure 35 (today is at a point equivalent to
end-2013). The forward curve implies that the market thinks that rates will be
raised for a similar length of time (5.5-6 years) but less aggressively. Certainly there
is nothing in the current yield curve shape that suggests that Treasuries expect a
permanently higher inflation future.
We expect the curve to This absence of medium-term inflation concern means that, given our growth and
pivot as rates start to be inflation forecasts, the approach of the first US rate increase is likely to be
raised associated with lower rather than higher yields. Again behaviour ahead of the
December 2015 tightening provides some precedent. Then 10-year Treasury yields
fell by 100bp from the start of the taper to the date of the first rate increase: Figure
36. Though yields today are starting from a significantly lower level we expect a
repeat curve flattening as markets trade concern over the immediate inflation
situation for concern about medium term growth.
Figure 36 Figure 37
10-year Treasury yields (%) Treasury note/bond spreads (bp)

4.5 180
(%) (bp)
4.0 160
3.5 140 30 - 20-year

120 10 - 5-year
3.0
100 10 - 2-year
2.5
80
2.0
60
1.5
40
1.0
20
0.5 0
0.0 (20)
10 11 12 13 14 15 16 17 18 19 20 21 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21
Inversion of parts of the From a starting point of 1.5-1.7%, we anticipate a move towards a 1-1.25% range
Treasury curve is possible over the course of 2022. As the curve became more concave in 2021, 10-5 year
spreads declined. The 30-20 year spread inverted in October 2021. If 10-year yields

behave as we expect, it represents a bear flattening. By 2H22, on our interest rate

forecast, the 10-2 year spread is unlikely to be more than 10bp. The 10-5 year
spread is likely to be zero or negative. The inversion of an actively traded part of
the Treasury curve is unlikely to be taken positively by equity markets.
Asian growth: Asian growth to slow alongside the US and EZ

The 2022 outlook for both Even before the discovery of the Omicron variant and notwithstanding the better
the US and EZ has been 4Q numbers the consensus estimate for US growth in 2021 and more importantly
drifting lower the 2022 forecast had been coming down: Figure 38. European growth estimates
for 2021 had been holding up better (the market was chasing data upwards over
summer), but growth forecasts for 2022 have in the last quarter started to be cut:
Figure 39. For both economies 2022 is forecast to be slower than 2021 with 2023
slower still.
Figure 38 Figure 39
Consensus GDP growth forecast evolution: US Consensus GDP growth forecast evolution: Eurozone
7.0 (%) 2021 growth 2022 growth 5.5 (%) 2021 growth 2022 growth
6.5
5.0
6.0
5.5 4.5
5.0
4.0
4.5
4.0
3.5
3.5
3.0 3.0
Jul Aug Sep Oct Nov Dec Jul Aug Sep Oct Nov Dec
Note: Bloomberg median forecast Note: Bloomberg median forecast

We agree and cut our 2022 We agree with the prevailing direction of these changes. For this Eye on Asian
growth forecast for the US Economies we cut our estimate for 2021 US growth to 5.5% in line with the
and EZ consensus. We were below consensus in our US 2022 forecast in the 4Q21 Eye on
Asian Economies. Nothing we see in current data suggest that that gap should
narrow and the impact of the more front-loaded tightening profile we now expect
for the US argues for a below consensus figure for 2023 also. We cut our 2022 US
growth forecast to 3.5% (0.4ppts below consensus and 0.3ppts down on three
months ago) and the 2023 forecast to 2.1% (0.4ppts below consensus and 0.4ppts
US 2022 growth to be 3.5% down on three months ago). For the Eurozone the 2021 growth estimate is left
unchanged at 5% (0.1ppts below consensus) and we trim our 2022 growth forecast
to 4.0% (0.2ppts below consensus and the forecast in the 4Q21 EoAE). We leave
EZ 2022 growth to be 4.0% our 2023 Eurozone forecast at 2.1% (0.2ppts below consensus). It is worth
reminding that US growth peaked in 1Q21 and 2Q21 at a saar of 6%, and Eurozone
The reopening growth peak growth peaked in 2Q and 3Q at a saar of 6.5%. These forecasts represent a
for both in 2021 was normalisation process rather than anything approaching recession but they are still
around 6-6.5% much slower than seen thus far in the post-pandemic recovery.
As the US and EZ have led, As we explain above (pp11-13), the US and Europe have driven the global
this implies slower growth recovery in the last eighteen months. As their growth profiles flatten it will flatten
of world trade the path of world trade. This is important for the growth prospects of all emerging
economies and certainly for Asia, whose exporters are central to global durable
goods supply chains.

Treating Covid as endemic The impact of a slowdown in global trade growth on Asian economies will initially
is the first step to consumer be hidden behind stronger consumer spending in newly fully vaccinated
spending normalising populations. Omicron has made this less certain than we had hoped and the region’s
tourism will remain blighted by local travel restrictions and China’s zero-Covid
policy. However, if we are correct and all countries but China move to treating Covid
as endemic, lockdowns of the scale seen in mid-2021 will not reoccur. As they
recede, consumer behaviour should be able to normalise. This will allow consumer
spending, in historically export-driven economies, to recouple to export growth.
However it will do so at a time when export growth is slowing.
Figure 40
Our Asian growth forecasts CLSA GDP forecasts relative to consensus

are above consensus for (%YoY) 2019 2020 2021E 2022F 2023F CLSA-consensus
2022 2022 2023
USA 2.3 (3.4) 5.5 3.5 2.1 (0.4) (0.4)
Eurozone 1.5 (6.5) 5.0 4.0 2.1 (0.2) (0.2)
Japan 0.0 (4.7) 2.2 2.5 1.2 (0.1) (0.1)
Australia 2.0 (2.2) 3.9 4.1 2.7 0.4 (0.3)

China 6.0 2.3 8.0 5.4 5.5 0.1 0.2
Hong Kong (1.7) (6.1) 7.0 4.0 2.8 1.0 0.0
India¹ 4.0 (7.3) 9.5 8.0 6.0 0.6 n.a.
Indonesia 5.0 (2.1) 3.6 6.0 5.5 0.8 0.3
Korea 2.2 (0.9) 3.8 3.1 2.8 0.1 0.3
Malaysia 4.4 (5.6) 3.1 6.8 4.3 1.2 (0.8)
Philippines 6.1 (9.6) 4.4 6.6 6.8 0.0 0.6
Singapore 1.3 (5.4) 6.9 4.7 3.2 0.7 (0.2)
Taiwan 3.1 3.4 5.6 3.8 3.0 0.5 0.1
Thailand 2.3 (6.1) 1.1 4.1 3.4 0.2 (0.6)
Source: CLSA, CEIC, Bloomberg
On post-vaccination PCE With this Eye on Asian Economies we roll our comparison tables onto 2022 and 2023.
growth We retain above-consensus forecasts for Asia in 2022: Figure 40. This reflects our
faith in vaccination programs and our view that The Street is underestimating the
benefits of normalising consumer behaviour on growth. However in addition to this
general effect we flag:
The political cycle suggests  China: 2022 will start soft. However we expect a pickup in infrastructure FAI
that few risks will be taken to begin to compensate for weakness in real estate. The political calendar is
with China’s economy in important. The Twentieth National Congress of the Communist Party of China
2022
takes place in autumn. Economic risks will be minimised ahead of and during
this period. Practically this suggests a marginal rebalancing of policy towards
growth support if it appears that the economy (after the next few months) is
growing below trend. The growth target for 2022 will not formally be
announced until 1Q22. A 5-5.5% range is likely with the top of this range seen
as necessary to maintain full employment.
PCE to drive growth in HK  Hong Kong and Singapore: These economies differ in their reopening to
and Singapore international travel (we expect Singapore to continue to loosen restrictions,
Hong Kong will continue with quarantine requirements other than with the
Mainland). However, both economies have supported household incomes well
during the pandemic. We think that both justify an optimistic outlook for
consumer spending in 2022.

High trend growth  India: Growth in FY22 (starting April 2021) will be the strongest of all the
economy; fastest AxJ 2022 economies we forecast even with the surge in Covid cases in 2Q21. FY23
growth forecast (starting April 2022) will be slower but consumer spending will be good
assuming that Covid lockdowns are not necessary. This is a high trend growth
economy, so even with slower 2022 growth than 2021, India will be the fastest
growing economy we forecast in 2022 (FY23).
Sovereign wealth fund and  Indonesia: The domestic investment cycle has started to turn, however, it
FDI to support investment remains weak. However we hope that the sovereign wealth fund can bypass
fiscal constraints on infrastructure spending and that FDI, incentivised by
Indonesia’s extensive nickel reserves, will support manufacturing capex.
Auto supply chain benefit  Malaysia: Pent up global demand for autos should see export shipments hold
up better than consumer goods manufacturers in 2022.
Only China to grow more in As global growth slows, we see Asian growth slower in 2023 than 2022 in all but
2023 than 2022 China. Our forecasts are above consensus across the board for 2022 but more
mixed relative to consensus for 2023. However, all the Asian economies we forecast
will continue to grow above trend in 2023. However, our benchmark for 2023
All economies to grow
above trend, but “trend” is growth has been mid-cycle averages from the years following the GFC. This is
slower than “rebound” considerably slower than the rebound phase that (Delta variant interruptions
permitting) has prevailed in the last twelve months.
It is mainly country specific factors (and statistical carry from 2021) that change our
2022 forecasts from what we expected three months ago. These are detailed in the
country sections that follow. Changes to our 2023 forecasts are typically small.
Figure 41 shows our current forecasts compared with those from the 4Q21 Eye on
Asian Economies.
Covid remains the obvious The biggest risk to these data remains the pandemic. As we flag above (see pp16-
risk despite our conviction 17) early signs suggests that the Omicron variant will not reverse the benefits of
that lockdowns in 2022 will vaccination critical mass to undermine the forecast. However, neither does
be avoided
vaccination make the forecast risk free.
Figure 41
Revisions to our 2022 CLSA GDP forecasts relative to 4Q21 Eye on Asian Economies
growth forecast are mixed, (%YoY) 2019 2020 2021E 2022F 2023F Chg in CLSA f'cast
we are a little more in last qtr
optimistic about 2023 2022 2023
USA 2.3 (3.4) 5.5 3.5 2.1 (0.3) (0.4)
Eurozone 1.5 (6.5) 5.0 4.0 2.1 (0.2) 0.0
Japan 0.0 (4.7) 2.2 2.5 1.2 (0.2) 0.0
Australia 2.0 (2.2) 3.9 4.1 2.7 (0.6) 0.2

China 6.0 2.3 8.0 5.4 5.5 (0.1) 0.0
Hong Kong (1.7) (6.1) 7.0 4.0 2.8 0.1 0.2
India¹ 4.0 (7.3) 9.5 8.0 6.0 0.6 0.2
Indonesia 5.0 (2.1) 3.6 6.0 5.5 0.0 0.0
Korea 2.2 (0.9) 3.8 3.1 2.8 (0.3) 0.3
Malaysia 4.4 (5.6) 3.1 6.8 4.3 0.1 (0.3)
Philippines 6.1 (9.6) 4.4 6.6 6.8 (1.4) 0.0
Singapore 1.3 (5.4) 6.9 4.7 3.2 0.1 0.0
Taiwan 3.1 3.4 5.6 3.8 3.0 (0.1) 0.0
Thailand 2.3 (6.1) 1.1 4.1 3.4 (0.3) 0.0

Asian inflation: A half-hearted participant

We raise our inflation We have raised our inflation forecasts for the US and Europe as 2021 ended hot to
forecasts for the G2 but our expectations and it will take time for the more aggressive policy we expect from
Asia’s participation in the Fed to apply discipline: Figure 42 below. The G2 inflation spike has not
“global inflation” is half
hearted bypassed Asia entirely, however, the region’s participation has been decidedly half-
hearted (including Japan where core inflation remains negative). Headline inflation
has pushed higher in most economies we forecast but only in Korea, Taiwan and
Singapore has there been a material acceleration in core inflation rates.
In most Asian countries That these are Asia’s high income economies is not coincidental. The rule is not
core inflation trends are flat universal; for example, excluding government rebates inflation rates are falling in
Hong Kong. But, the developed versus emerging market inflation split we reference
above (pp6-7) is visible in Asia also. Outside of food and energy effects, inflation in
the region has been hobbled by the Delta variant in 3Q and the fact that fiscal
transfers to protect household and company income from the effects of the
pandemic have been much less generous.
Reopening should boost As the region reopens we expect to see core inflation rising as service sectors gain
Asian core inflation, but by some pricing power. Given the trajectory of Asian inflation through the pandemic
this time headline inflation this will be moderate (we assume around 0.5ppts boost) and temporary (we assume
will be falling
around 3-6 months). However, given our expectations for commodity prices food
and energy effects on inflation will start to fall. This will not be immediate. If oil
prices behave as we expect and remain in a range above USD 70/bbl in the first
half, oil will on a year-on-year basis still be making a positive contribution to
inflation rates until June but the magnitude of the boost gets smaller quickly. And
the case that central banks do not have to be concerned with second-round effects
is stronger for Asia than it is for the US given how core inflation has behaved
through 2021. Accordingly, we see Asian inflation risk low and, as we discuss below,
a less important driver of monetary policy.
Figure 42
Our average inflation CLSA inflation forecasts relative to 4Q21 Eye on Asian Economies
forecast has risen by (%YoY) 2019 2020 2021E 2022F 2023F Chg in CLSA f'cast
0.1ppts for 2022 and fallen in last qtr
by 0.1ppts for 2023 2022 2023
USA¹ 1.5 1.2 3.7 3.1 2.0 0.2 0.0
Eurozone 1.2 0.3 2.5 2.2 1.6 0.1 0.2
Japan 0.5 0.0 (0.1) 0.9 0.5 (0.9) 0.0
Australia 1.6 0.9 2.7 2.0 1.9 0.0 0.0

China 2.9 2.5 1.0 2.2 2.0 0.5 0.0
Hong Kong 2.9 0.3 1.4 2.9 1.9 0.6 0.0
India² 4.8 6.3 5.6 5.5 5.0 0.0 0.4
Indonesia 2.8 2.1 1.5 2.9 3.2 (0.1) (0.4)
Korea 0.4 0.5 2.4 2.7 2.0 0.4 0.5
Malaysia 0.7 (1.1) 2.4 2.3 1.9 (0.5) (0.1)
Philippines 2.5 2.6 4.4 4.0 3.7 (0.4) (0.2)
Singapore 0.6 (0.2) 2.2 2.0 1.1 0.2 (0.4)
Taiwan 0.6 (0.2) 2.0 1.4 0.9 0.0 (0.1)
Thailand 0.7 (0.8) 1.2 2.8 2.2 0.4 (0.3)
¹ PCE deflator, ² Fiscal year starting April of captioned calendar year.

These small changes reflect The tension between slowing global growth and inflation that mainly reflects the
the fact that our forecasts gap between rapid demand growth and inelastic supply has long been at the core
already balance weaker of our forecasts. Accordingly, we make only small changes to both the commodity
demand growth against price profile we assume for this Eye on Asian Economies (see Figure 11 above) and
current supply inelasticities
the inflation forecasts for AxJ. Figure 42 shows our current forecasts compared with
our view three months ago. We have revised up our 2022 inflation forecasts for
China and Hong Kong, Korea, Singapore and Thailand this compares with reductions
for Indonesia, Malaysia and the Philippines.
Also real estate will support It is the strong end to 2021, predominantly because of global price moves, that lies
inflation in some Asian behind the increase in our 2022 inflation forecast for Korea, Singapore and
economies in 2022 Thailand. Additionally we flag real estate price moves in Korea and Singapore. Thus
far these are not having a strong impact on inflation because of how property is
measured in CPI. But real estate will come to exert an influence as rents and
imputed rents catch up with spot property prices. It is also an inflation source that
is not subject to direct influence by slowing global growth in the way that food or
fuel prices are. Real estate price rises in 2021 are also a boost to inflation in 2022
in Hong Kong.
Higher CPI inflation reflects Higher inflation in China is less due to global forces. It is mainly driven by adverse
country-specific factors weather raising vegetable prices and farmers withholding pork supply, in response
to earlier weak prices, which has caused shortages as seasonal demand has
increased. Both effects should be temporary. CPI inflation in China remains at
PPI inflation has been
boosted by global forces –
unremarkable levels from the perspective of economic policy and it is PPI – more
the policy reaction suggests directly impacted by commodity price moves – and the margin pressure it creates
little pass through to which has caused the authorities concern. This now looks to have been brought
general G&S prices under control and we see Chinese PPI inflation declining through 2022.
We are still members of Describing inflation as “transitory”, has gotten a bad name with the Fed abandoning
“team transitory” the term because it no longer felt that it helped its forward guidance. We remain,
members of “team transitory” in the sense that the Fed intended it. This is that the
price shock created by the rapid rebound from the pandemic will not generate
sufficient second round effects to perpetuate inflation after the initial upstream
price moves moderate. This remains our expectation for developed economies (our
G2 forecasts have inflation lower in 2022 and lower again in 2023), with more
aggressive Fed tightening ensuring it.
By 2023 we expect Asian And it definitely remains our view in Asia where evidence of cost inflation being
inflation rates to be similar successfully passed through is sparse (and note that it is margin compression not
to pre-pandemic norms inflation that has provoked policy action in China). In all of our Asian forecasts
inflation is falling in the second half of 2022. Only in Indonesia (where current
inflation trends are benign) do we forecast 2023 inflation to exceed 2022 levels. In
fact we make small downward revisions to our 2023 inflation profiles for most
countries. This is mainly housekeeping as models have been updated and these
changes should not be seen a significant relative to the big picture. This is that
inflation rates across the region are at normal levels in 2023 – close to those that
prevailed before the pandemic.
Consensus Asian inflation Figure 43 shows our inflation profiles relative to the consensus. The Street forecast
forecasts remain very low for Asian inflation has remained extremely low despite the market narrative in 2021.
In fact we think them too low in nearly every country we forecast. Certainly the
expectation of even a shallow reopening bounce suggests firmer service prices than
is compatible with median Asian inflation forecasts for 2022. On average our 2022
forecasts are 0.5ppt above consensus. The gap narrows for 2023.

Figure 43
We think too low; we are CLSA inflation forecasts relative to consensus

above consensus for 2022 (%YoY) 2019 2020 2021E 2022F 2023F CLSA-consensus
2022 2023
USA¹ 1.5 1.2 3.7 3.1 2.0 (0.1) (0.2)
Again the bigger picture is
that AxJ inflation is forecast Eurozone 1.2 0.3 2.5 2.2 1.6 (0.1) 0.1
to fall in 2023 to pre- Japan 0.5 0.0 (0.1) 0.9 0.5 0.2 (0.2)
pandemic levels
Australia 1.6 0.9 2.7 2.0 1.9 (0.5) (0.4)
China 2.9 2.5 1.0 2.2 2.0 0.0 (0.2)
Hong Kong 2.9 0.3 1.4 2.9 1.9 0.9 (0.2)
India² 4.8 6.3 5.6 5.5 5.0 0.6 n.a.
Indonesia 2.8 2.1 1.5 2.9 3.2 0.0 0.2
Korea 0.4 0.5 2.4 2.7 2.0 1.0 0.4
Malaysia 0.7 (1.1) 2.4 2.3 1.9 0.5 0.0
Philippines 2.5 2.6 4.4 4.0 3.7 0.8 0.7
Singapore 0.6 (0.2) 2.2 2.0 1.1 0.6 (0.4)
Taiwan 0.6 (0.2) 2.0 1.4 0.9 0.0 (0.4)
Thailand 0.7 (0.8) 1.2 2.8 2.2 1.3 1.0
¹ PCE deflator, ² Fiscal year starting April of captioned calendar year.
Omicron as an inflation risk If the Omicron coronavirus variant causes more economic disruption than we
expect it will be visible in supply chain stress as well as slower economic growth.
This remains a risk to the timing of the inflation slowdown and the OECD has
warned accordingly. As we explain above, our growth forecasts assume that existing
vaccination programs are not negated by the new variant and this works for inflation
And the revealed also. If we are wrong, upstream price pressures will last longer. But this does not
preference of China’s change the fundamental argument that as growth normalises inflation will
policymakers
normalise also. Under all circumstances we expect China to adopt a zero-Covid
target. Therefore its growth and inflation outlook is the least contingent on the
pandemic. As we flag above, the policy response to elevated PPI inflation reveals
that China’s policymakers are more worried about the margin compression resulting
from inflation of finished goods prices.
Asian monetary policy: Return to pre-Covid norms (mostly)

BoK has started to tighten Thus far the only Asian central bank to have raised rates has been the Bank of
and sets the pattern for the Korea. Korea has, relative to post-GFC norms, one of the most elevated CPI
region inflation in Asia, however this has not been the main motivation for rates being
raised. Rather the BoK is worried about rapidly rising household debt and
overheating real estate. It will take more the 2x 25bp rate increases that occurred
in 2021 to tackle these issues so we anticipate that rates will be raised again in the
coming six months. Our central case has Korean rates increased twice, to 1.5% by
mid-2022.
Asian monetary policy is We start with this observation because two factors are noteworthy. The first is that
independent of the US the BoK decision has been independent of US monetary policy. In fact generally,
across the region, the direction of US monetary policy has exerted only a weak
influence on Asian interest rate decisions for at least a decade. As we noted last
quarter (4Q21 EoAE pp24-25) Asian central banks were more aggressive raising
rates after the Global Financial Crisis than was the Fed. And, mid-2010s policy
adjustments were made independently of the direction of US rates. In this cycle the
Asian majority is likely to be less aggressive than the Fed.

In most Asian economies This is because of the second factor. Korea’s inflation has been elevated but still
inflation is still low and not played a relatively small part in the BoK decision. Elsewhere in Asia (see above)
the primary focus inflation is lower and in some cases ex-food and energy inflation is very low. But
the perception that over-frothy real estate sectors represent a risk is widespread.
And Asian central bank are much more risk averse (and have to be more risk averse)
about financial imbalances building than are developed economy central banks.
Figure 44
As central banks aim to Policy rate forecasts

reverse the exceptional End-2019 End-2020 Current End-2021 End-2022 End-2023
tightening of the pandemic USA¹ 1.63 0.13 0.13 0.13 0.88 1.38
Eurozone² (0.50) (0.50) (0.50) (0.50) (0.50) (0.50)
Japan² (0.10) (0.10) (0.10) (0.10) (0.10) (0.10)
Australia 0.75 0.10 0.10 0.10 0.50 1.00
China3 4.15 3.85 3.85 3.85 3.85 4.00
Hong Kong 4 2.43 0.35 0.26 0.40 1.50 1.75
India5 4.40 4.00 4.00 4.00 5.00 5.50
Indonesia 5.00 3.75 3.50 3.50 4.00 4.75
Korea 1.25 0.50 1.00 1.00 1.50 1.50
Malaysia 3.00 1.75 1.75 1.75 2.25 2.75
Philippines 4.00 2.00 2.00 2.00 2.50 3.00
Singapore6 1.77 0.41 0.44 0.44 1.00 1.35
Taiwan 1.38 1.13 1.13 1.13 1.38 1.38
Thailand 1.25 0.50 0.50 0.50 1.00 1.25
1
Mid-point of Fed funds upper and lower bounds; 2 Overnight reserve deposit rate; 3 1-year LPR rate 4 3-month
HIBOR; 5 Fiscal year starting April of captioned calendar year; 6 3-month SIBOR. Source: CLSA, Bloomberg
Our modal forecast is that Figure 44 shows our forecasts for Asian policy rates in 2022 and 2023. Korea and
rates will be raised from Taiwan aside, we see most central banks starting to raise rates around the middle
mid-year of 2022. Though this is coincident with the Fed, the motive will be increasing
confidence that vaccination has allowed the pandemic to recede as a primary
economic threat. Decent first half growth, particularly of domestic expenditure
components and continued Asian currency softness also provide incentive for the
region’s central banks to start to normalise interest rates.
But little more than this; in For most Asian economies we expect this to be a relatively flat rate cycle. Our modal
absolute terms policy to rate forecast for 2H22 is 2x25bp increases. These will continue in 2023; even so
stay loose the interest rate cycle represents, for most economies, the restoration of the
monetary conditions that prevailed before the pandemic, rather than the start of a
multi-year tightening cycle. For most countries we see policy rates being raised
early in 2023 but kept on hold from mid-year.
In Korea and Taiwan The exceptions are noteworthy. For Taiwan and Korea it will take only two (further)
tightening can be over by rate increases to restore rates to their pre-pandemic levels and this can be achieved
mid-2022 within the next six months. Accordingly we see rates on hold in both from the
middle of 2022.
India’s pre-pandemic rate India’s 2020 pandemic rate cuts occurred after a multi-year cycle in which rates
levels were already low, on were cut 285bp to deal with a severe balance sheet recession. Restoring rates to
our forecast it is closest to a pre-pandemic levels would therefore still therefore leave monetary policy extremely
multi-year tightening cycle accommodative. Though the shallow recovery we expect (see 40-41) warrants
careful removal of accommodation, we expect rates to be raised four times in FY23
and a further two times in FY24. On our forecast, India is the only Asian economy
where the central bank will raise rates more than in the US.
China is unlikely to tighten China is unlikely to tighten at all in 2022. Its last policy move, at the end of 2021,
at all in 2022 was to cut RRR. This should not be interpreted as the start of a generalised easing
cycle. We interpret the RRR cut as an attempt to reduce the average funding cost

for favoured parts of the economy (green-tech, hi-tech and SMEs) without resorting
to official rate cuts and to be in anticipation of a soft start to 2022 (see pp24). But
it reveals that downside risk is a policy concern. The political calendar, with the
Twentieth National Congress of the Communist Party of China taking place in
autumn, also suggests that few risks will be taken with the economy. The triaged
response to the US-China trade war suggests that bond funded infrastructure FAI
will be favoured if the economy needs further support. We do not therefore expect
rate cuts in 2022. But monetary tightening is something that, on our forecast, will
be pushed into 2023.
Hong Kong to compete with Finally mention is needed of Singapore and Hong Kong. Both have an exchange
India for the most rate centred monetary policy and do not target interest rates. Interest parity means
aggressive rate increase in that both will see local currency rates rise as US rate hikes commence. Because of
2022-23 in Asia the currency board, the link is hardest in Hong Kong. Here we see 3-month HIBOR
at 1.50% by end 2022 and 1.75% by mid-2023. This is vying with India for the most
aggressive monetary tightening on an 18-month horizon. Singapore rates will rise
also, but its policy of appreciating the SGD NEER (we expect the gradient to be
steepened in April) means that it can sustain money market rates at a discount to
USD rates. We expect 3-month SIBOR at 1% by end-2022 and 1.35% by mid-2023.
Asian currencies: First half weak, second half stronger

USD was a strong The USD was a strong currency in 2021 receiving support because of the
performer in 2021 anticipation that the Fed would tighten more aggressively than either the Bank of
Japan or the ECB: Figure 45. Most Asian currencies also underperformed the USD
in 2H21 with market risk aversion raised by the Delta variant in the third quarter.
The early tightening by the Bank of Korea appeared to offer little support nor has
the successful completion of vaccination programs by Korea, Japan and Asia’s
middle income economies.
So was the CNY, we The exception to this rule was the CNY. As Figure 46 shows, the CNY was a
attribute this to sticky consistent outperformer in 2H21. Indeed, although the CNY’s 1H21 progress was
capital inflows less linear, it can claim to have been a consistent outperformer in the period since
the pandemic first wave. While the first move higher might claim to have been
driven by China’s initial outperformance in recovering from the pandemic, the CNY
has remained well bid even though China’s economic performance in 2021 has been
mixed. We attribute this to sticky financial inflows into the CNY government bond
market. These are likely to persist in 2022.
Figure 45 Figure 46
Fed broad trade-weighted USD index (Jan 2006=100) ADXY

118 103 (01/01/21 =
(01/06=100)
117 100)
102
116
101
115
114 100
113 99
112 98
111 ADXY
97
110 CNY
109 96 ADXY excl CNY
108 95
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

USD strength to continue in Our roadmap for Asian currencies remains the strong USD period that persisted
1H22 through the 2014 taper and came to an end only after the Fed had started to raise
rates at the end of 2015. This should be considered an extension of the extant
USD strength described above rather than something distinct from it. Indeed the
biggest currency adjustment has likely already happened. However the start of
the tightening in financial conditions that we flag above, together with our
expectation that expectations of rate increases will continue to rise (as well as roll
down the forward curve), means that we see continued USD outperformance for
the first half of 2022.
We see Asian currencies For Asia this suggests continued generally soft exchange rates for the first half.
weaker Notwithstanding CNY strength in 2021, we expect this to affect all regional
currencies to a greater or lesser extent. Figure 47 shows our currency forecasts
versus the USD for mid-2022 compared with end-2021. We see all currencies
weaker as the approach of the first US rate increase squeezes risk appetite. For
most Asian currencies, current account support should remain good; but less good
than it was in 2021 when imports were squeezed by the pandemic.
CNY, INR and SGD are Within this framework (and excluding the USD-pegged HKD) we favour CNY
relative safe havens because of the structural element of financial flows into its asset markets and INR
because of market confidence in the Reserve Bank’s economic management and
reserve accumulation. On our expectation that MAS steepen the gradient of the
SGD NEER policy band at the April policy meeting (to a 2-3% per annum rate), the
SGD also emerges as a relative outperformer on a six month view.
IDR, THB and PHP relative Typically financial flows into Asian economies are reduced during periods of rising
underperformers, alongside risk aversion particularly if the global growth outlook starts to weaken (China is
AUD, EUR and JPY likely to prove the exception in 2022). And this lies behind our expectation that
Asia’s manufacturing exporters see currency weakness in 1H22. However, it
remains currencies with higher country risk (and often lower liquidity) that are most
unfavoured on our forecast (IDR, THB, PHP) alongside the developed economy
currencies. Here, what matters most is the differential between what can be
expected of US rates and expectations for local monetary policy. Central banks
moreover, adopt a hands off approach to currency volatility (JPY, EUR and AUD).
When the Fed starts to The post-GFC tightening roadmap suggests that USD gains will start to stall when
raise rates USD gains are US rate increase start to be delivered. This remains our central case but the
likely to stall changes to our US rate forecast as a result of the “Powell pivot” advance this
period from the end of 2022 (in the 4Q21 Eye on Asian Economies) to the second
half. Figure 48 shows the changes in currencies vs the USD we expect from end-
2Q22 to end-4Q22.

Figure 47 Figure 48
Mid-2022 currency forecasts vs end-2021 forecasts End 2022 currency forecasts vs end-2Q22 forecasts
HKD -0.3% AUD 4.6%

SGD (%) -2.1% GBP 3.9%
CNY -2.3% EUR 2.8%
INR -2.7% INR 2.6%
TWD -3.5% SGD 2.2%
KRW -3.6% THB 2.0%
GBP -3.8% JPY 1.7%
MYR -3.8% CNY 1.6%
IDR -4.0% PHP 1.4%
THB -4.2% IDR 1.4%
JPY -4.3% MYR 1.1%
EUR -4.5% TWD 1.1%
PHP -5.1% KRW 0.4%
AUD HKD
(%)
-7.1% 0.3%
-8% -7% -6% -5% -4% -3% -2% -1% 0% 0% 1% 2% 3% 4% 5%
Source: CLSA Source: CLSA
But this will occur in a The start of US rate increases provides an opportunity for markets to reassess.
slower global growth However in 2H22 this will be happening in a global growth environment that
environment tempering favours export-driven economies less and inwardly-driven ones more. Hence our
capital flows into many
expectation that KRW and TWD will see muted second half rebounds relative to
Asian economies
(for example) CNY and INR. INR will also be one of the few Asian economies where
the scale of interest rate increases exceeds that in the US. In comparison the front
loaded rate cycles in Korea and that we forecast for Taiwan works against their
currencies in 2H22. Both will keep rates on hold from mid-year while those in the
US, and the majority of their Asian peers, are being increased.
US on hold from mid-2023 Pushing the forecast into 2023 sees continued gains for Asian currencies. Fed
implies softer USD tightening will pause in 2023 and this is likely to add to USD softness. Figure 49
tabulates our currency forecasts. Only for India (on a real exchange rate basis) and
the Philippines (ditto but also relative country risk) do we see currencies softer
versus the USD in 2023.
Figure 49
Currency forecasts
Period end 2019 2020 2021F 2022F 2023F Coming 12 months by quarter
1Q22F 2Q22F 3Q22F 4Q22F
USD/EUR 1.12 1.22 1.12 1.10 1.15 1.10 1.07 1.09 1.10
JPY/USD 108.6 103.5 112.0 115.0 112.0 115.0 117.0 116.0 115.0
USD/GBP 1.33 1.36 1.33 1.33 1.37 1.31 1.28 1.30 1.33
USD/AUD 0.70 0.76 0.70 0.68 0.72 0.67 0.65 0.65 0.68
CNY/USD 6.98 6.53 6.35 6.40 6.30 6.45 6.50 6.40 6.40
HKD/USD 7.80 7.75 7.80 7.80 7.80 7.81 7.82 7.81 7.80
INR/USD 71.27 73.05 75.40 75.50 76.50 76.20 77.50 76.50 75.50
IDR/USD 13,901 14,105 14,400 14,800 14,500 14,500 15,000 15,000 14,800
KRW/USD 1,158 1,088 1,190 1,230 1,150 1,200 1,235 1,230 1,230
MYR/USD 4.09 4.01 4.25 4.37 4.10 4.35 4.42 4.40 4.37
PHP/USD 50.74 48.04 51.00 53.00 54.00 53.00 53.75 53.50 53.00
SGD/USD 1.35 1.32 1.37 1.37 1.30 1.37 1.40 1.39 1.37
TWD/USD 29.99 28.12 27.80 28.50 27.60 28.20 28.80 28.60 28.50
THB/USD 30.22 30.10 34.00 34.80 32.50 34.50 35.50 35.20 34.80

Asian forecast summary

Real GDP growth (%YoY) Inflation (%YoY)
(average) 2020 2021E 2022F 2023F (average) 2020 2021E 2022F 2023F
Australia (2.2) 3.9 4.1 2.7 Australia 0.9 2.7 2.0 1.9
China 2.3 8.0 5.4 5.5 China 2.5 1.0 2.2 2.0
Hong Kong (6.1) 7.0 4.0 2.8 Hong Kong 0.3 1.4 2.9 1.9
India¹ (7.3) 9.5 8.0 6.0 India¹ 6.3 5.6 5.5 5.0
Indonesia (2.1) 3.6 6.0 5.5 Indonesia 2.1 1.5 2.9 3.2
Korea (0.9) 3.8 3.1 2.8 Korea 0.5 2.4 2.7 2.0
Malaysia (5.6) 3.1 6.8 4.3 Malaysia (1.1) 2.4 2.3 1.9
Philippines (9.6) 4.4 6.6 6.8 Philippines 2.6 4.4 4.0 3.7
Singapore (5.4) 6.9 4.7 3.2 Singapore (0.2) 2.2 2.0 1.1
Taiwan 3.4 5.6 3.8 3.0 Taiwan (0.2) 2.0 1.4 0.9
Thailand (6.1) 1.1 4.1 3.4 Thailand (0.8) 1.2 2.8 2.2
Current account balance (USD bn) Current account balance (% GDP)

(total) 2020 2021E 2022F 2023F (average) 2020 2021E 2022F 2023F
Australia 35.6 63.8 44.5 32.0 Australia 2.6 4.0 3.0 2.0
China 274.0 320.0 345.0 300.0 China 1.9 1.8 1.8 1.5
Hong Kong 22.7 19.3 15.0 19.7 Hong Kong 6.5 5.2 3.9 4.8
India¹ 24.0 (39.2) (51.8) (67.3) India¹ 0.9 (1.3) (1.5) (1.8)
Indonesia (4.5) 3.1 (10.0) (30.5) Indonesia (0.4) 0.3 (0.8) (2.2)
Korea 75.3 78.8 43.9 64.6 Korea 4.6 4.4 2.5 3.4
Malaysia 14.3 14.1 12.9 12.9 Malaysia 4.2 3.8 3.3 3.0
Philippines 11.1 (0.8) (6.3) (12.5) Philippines 3.1 (0.2) (1.6) (2.9)
Singapore 59.8 80.4 83.8 90.3 Singapore 17.6 20.7 20.7 20.4
Taiwan 94.7 112.7 115.6 119.6 Taiwan 14.2 14.5 14.7 14.0
Thailand 21.2 (12.6) 4.7 14.2 Thailand 4.2 (2.5) 0.9 2.6
Exchange rates (vs USD) Policy rates (%)

(y/e) 2020 2021E 2022F 2023F (y/e) 2020 2021E 2022F 2023F
Australia² 0.76 0.70 0.68 0.72 Australia 0.10 0.10 0.50 1.00
China 6.53 6.35 6.40 6.30 China 3.85 3.85 3.85 4.00
Hong Kong 7.75 7.80 7.80 7.80 Hong Kong 0.35 0.40 1.50 1.75
India 73.05 75.40 75.50 76.50 India¹ 4.00 4.00 5.00 5.50
Indonesia 14,105 14,400 14,800 14,500 Indonesia 3.75 3.50 4.00 4.75
Korea 1,088 1,190 1,230 1,150 Korea 0.50 1.00 1.50 1.50
Malaysia 4.01 4.25 4.37 4.10 Malaysia 1.75 1.75 2.25 2.75
Philippines 48.04 51.00 53.00 54.00 Philippines 2.00 2.00 2.50 3.00
Singapore 1.32 1.37 1.37 1.30 Singapore 0.41 0.44 1.00 1.35
Taiwan 28.12 27.80 28.50 27.60 Taiwan 1.13 1.13 1.38 1.38
Thailand 30.10 34.00 34.80 32.50 Thailand 0.50 0.50 1.00 1.25
¹ Fiscal year starting April of captioned calendar year; ² Rates are quoted in USD/AUD. Source: CLSA

Australia EoAE Forecasts - 1Q22
Robust growth justifies RBA pivot

 Covid hit domestic demand in 3Q and cuts our 2021 growth estimate to 3.9%. However, strong household balance
sheets suggest that PCE and resi investment will be strong in 2022. They are the drivers for our 4.1% 2022 forecast.
 Inflation is contained. We expect 2% in 2022; the RBA expects 2¼%. Neither will worry the central bank. However, the
RBA is super bullish on growth and the last quarter has seen a big policy shift; it is now guiding markets to the exit.
 RBA ended its yield curve target in November, opening the door to higher rates. We expect cash rate to be 0.5% by end-
2022. The markets are discounting more so higher rates will offer little AUD support. Stay short AUD to mid-2022.
Growth
2021 growth estimate cut to Aussie 3Q21 growth was better than expected but only because of a drop in
3.9% imports. Domestic expenditure (outside of mining capex) was hit. It cuts our 2021
growth estimate to 3.9% (from 4.3%). At time of writing Australia is reacting to the
threat from the Omicron variant, so there might be downside risk to this figure.
Omicron reminds that the 2022 forecast is still Covid contingent in a country that,
Strong household balance though now fully vaccinated, takes a cautious approach to reopening. However, we
sheets augur well for PCE and
resi investment in 2022
retain a forecast of strong consumer spending and strong residential and non-
residential construction in our 2022 numbers. The contraction in export volumes in
2021 is a legacy of 1H21 weakness and will not be repeated in 2022. However, in
a conventional expenditure-based forecast Australia is (as always) a domestically
We expect GDP growth of
driven economy. In 2021 terms of trade gains helped support domestic
4.1% expenditures. Our commodity price expectations mean this is not the case in 2022.
However, household balance sheets are in better shape after the pandemic than
before it and consumption plus resi investment should remain strong. Our 2022
The RBA is even more bullish
forecast is 4.1%; this is a little above consensus though it is worth noting that, in
November the Reserve Bank of Australia lifted its CY22 forecast to a massive 5½%.
Inflation
Inflation around 2% in 2022 The same review lifted the inflation outlook to 2¼%. We expect inflation a little
lower at 2% due to a negative contribution from food and fuel prices in 2H22.
Monetary policy and exchange rate

In November the RBA ended its These numbers are below the RBA’s medium-term target. However, with growth
yield curve control strong the RBA has shifted its behaviour significantly. At the November meeting, it
abandoned its 10bp target for the April 2024 bond. The RBA has always been explicit
This opens the door to higher that the yield curve target precluded higher short rates for the duration of the bond.
rates Abandoning the target thus guides the market towards expecting rates to be raised.
Financial markets have reacted. By end-November, money markets were discounting
the policy rate at 0.76% by end-2022. We think this too aggressive; the RBA’s tone
We forecast 0.5% cash rate for remains dovish. The first move will be to return the policy rate to 0.25% (from 0.1%).
end-22 and 1.0% cash rate for This can happen around mid-2022; but, we only anticipate one further increase in
end-2023 2H22, taking rates to 0.5%. We assume 2x moves (to 1%) in 2023.
The markets are discounting This is less than discounted, so suggests little interest rate support for the AUD. The
more so this implies little AUD AUD suffered in 2H21; however, we anticipate further weakness to mid-2022. Our
support
previous end-2022 forecast of USD0.65/AUD, is advanced by around 6 months
because of the more aggressive US tightening we expect. At these levels the AUD
Stay short AUD to mid-2022 will be oversold and should be able to recover in 2H22 even against a softer
commodity price outlook. We see a move back above USD0.70/AUD in 2023.
The RBA raised its growth CLSA vs The Street

forecast to a huge 5½% in GDP Inflation Policy rate USD/AUD
November. It is growth more
RBA (2022) 5.5 (2022) 2.25 n.a n.a.
than inflation that lies behind
the shift in monetary policy Consensus (2022) 3.8 (2022) 2.5 (end-22) 0.75 (end-22) 0.77
guidance CLSA (2022) 4.1 (2022) 2.0 (end-22) 0.50 (end-22) 0.68

Australia EoAE Forecasts - 1Q22
Australia by numbers
2016 2017 2018 2019 2020 2021E 2022F 2023F
Breakdown of real GDP
Private consumption 2.6 2.4 2.4 0.8 (5.8) 3.8 4.7 3.0
Public consumption 5.4 3.9 4.1 6.4 7.3 5.2 3.1 1.2
GFCF (2.3) 3.5 2.3 (2.4) (3.2) 10.3 5.7 3.9
Domestic demand (contr. to growth) 1.9 2.8 2.7 0.8 (2.6) 5.9 4.2 2.8
Exports, goods & services 6.7 3.7 5.1 3.1 (9.5) (1.1) 4.3 3.1
Imports, goods & services 0.4 7.8 4.5 (1.8) (12.9) 7.3 5.0 4.0
Real GDP growth 2.7 2.4 2.8 2.0 (2.2) 3.9 4.1 2.7
Prices
Consumer prices (y/e) 1.4 2.1 1.7 1.8 0.9 3.0 1.8 1.7
Consumer prices (average) 1.3 2.0 1.9 1.6 0.9 2.7 2.0 1.9
Producer prices (average) 0.7 1.7 2.0 1.4 (0.1) 2.6 0.9 0.9
Currency & interest rates
USD/AUD (y/e) 0.72 0.78 0.70 0.70 0.76 0.70 0.68 0.72
USD/AUD (average) 0.74 0.77 0.75 0.69 0.69 0.73 0.67 0.70
Cash target rate (% y/e) 1.50 1.50 1.50 0.75 0.10 0.10 0.50 1.00
Average mortgage rate (% y/e) 5.25 5.22 5.34 4.80 4.52 4.52 4.60 4.70
External sector
Exports (USD, % YoY) 2.5 20.0 11.4 5.1 (7.1) 32.8 (7.5) (1.4)
Imports (USD, % YoY) (4.1) 11.2 7.2 (5.9) (5.3) 16.4 (5.6) 4.8
Trade balance (USD bn) (5.8) 10.5 20.8 48.0 40.6 88.5 77.4 61.9
Current account balance (USD bn) (41.3) (35.8) (30.7) 8.4 35.6 63.8 44.5 32.0
- as a % of nominal GDP (3.3) (2.6) (2.2) 0.6 2.6 4.0 3.0 2.0
FDI (USD bn) 46.1 38.2 61.0 29.6 7.2 8.2 4.5 4.3
CA + net FDI (% GDP) 0.3 0.2 2.1 2.7 3.2 4.6 3.3 2.2
International reserves (USD bn, y/e) 52.5 65.6 53.9 58.0 42.5 58.5 51.5 53.8
Money supply
Money supply M1 (y/e) 8.5 9.2 2.6 22.4 27.9 13.9 9.1 8.1
Money supply M3 (y/e) 6.7 4.5 2.4 2.4 12.7 7.2 9.1 6.3
Private sector credit (y/e) 5.6 5.2 4.7 1.6 1.9 6.4 10.8 8.0
Private sector credit (% GDP) 150.3 152.6 150.9 146.7 148.3 147.5 154.2 156.0
Government sector
General gov’t balance (% GDP) (2.4) (2.3) (0.3) 0.1 (5.3) (9.4) (5.0) (3.0)
General gov’t debt (% GDP, y/e) 68.4 65.6 65.9 75.7 85.0 88.0 87.0 87.0
Nominal GDP
Nominal GDP (USD bn) 1,265.5 1,382.5 1,415.4 1,384.4 1,362.7 1,578.0 1,512.8 1,654.3
Nominal GDP per capita (USD) 52,271 56,202 56,635 54,523 52,820 60,205 56,807 61,143
Nominal GDP (AUD bn) 1,699.9 1,802.7 1,895.3 1,995.0 1,969.0 2,158.2 2,276.1 2,353.7
Nominal GDP (AUD, % YoY) 3.8 6.0 5.1 5.3 (1.3) 9.6 5.5 3.4
Other data
Industrial production (1.6) 0.6 1.6 (1.6) (1.4) 4.1 2.5 0.3
Retail sales 3.4 2.7 3.0 2.7 6.2 6.6 6.5 5.0
Unemployment (% y/e) 5.7 5.5 5.0 5.2 6.8 5.1 5.0 5.0
Population (millions) 24.2 24.6 25.0 25.4 25.8 26.2 26.6 27.1
Note: % YoY rates unless otherwise stated. Fiscal deficit estimates are for the fiscal year ending in June. eg, 2015/16 is under 2016. Source: ABS, RBA, OECD
Currency forecast
2019 2020 2021F 2022F 2023F 1Q22F 2Q22F 3Q22F 4Q22F
USD/AUD 0.70 0.76 0.70 0.68 0.72 0.67 0.65 0.65 0.68
JPY 100/AUD 76.3 79.1 78.4 78.2 80.6 77.1 76.1 75.4 78.2
GBP/AUD 0.53 0.56 0.53 0.51 0.53 0.51 0.51 0.50 0.51
EUR/AUD 0.63 0.62 0.63 0.62 0.63 0.61 0.61 0.60 0.62

China EoAE Forecasts - 1Q22
Not a good start

 China economic growth will remain under downward pressure in 4Q21 due to soft consumption and FAI. 1Q22’s GDP
will remain soft but infrastructure FAI and consumption will improve to start to drive growth higher.
 The rise of 1Q22’s headline CPI will be limited but annual inflation in 2022 will be higher than 2021. PPI will fall sharply
starting in 1Q22 due to weakened upward momentum of global commodities prices.
 The RRR cut in December was forward looking, intended to guard against an anticipated soft start to 2022, reduce
financing costs and help create demand for local government bonds. We do not expect a cut in policy rates.
Growth
Downward pressure on growth October monthly data didn’t reveal an alleviation of downward pressure on the
in 4Q21 will persist in 2022 economy even though the reading of retail sales, manufacturing FAI and
infrastructure FAI were higher than in September. On the contrary, this temporary
rebound was due to the passing of negative Covid effects in the September numbers
and rising prices affecting the nominal series (retail sales and FAI). The main drags on
growth did not change: weak real estate and slow FAI growth. Exports were the main
positive. Although overall, 1Q22 will be weak, the composition will start to change.
Export growth is likely to soften. More positively, infrastructure FAI and
consumption will accelerate. We expect GDP growth of 5.4% YoY in 1Q22.
Infrastructure investment As economic downside pressure persists, the government appeal of rapidly stabilising
stronger on projects reserved growth is stronger; hence, infrastructure can be seen as an important channel. That
from late 2021
said, we remain optimistic about a 1Q22 acceleration of infrastructure FAI since local
governments in late-2021 reserved enough projects for early in 2022.
Real estate remains the biggest Real estate is still the most concerning part of China’s economy. Historically speaking,
growth risk after weak housing there were only three years when the annual growth of housing sales was negative.
sales in 2021
In all cases, they were followed by weak real estate FAI in the following year. Year
to October 2021 the growth of housing sales was negative. We do not expect the
situation in 1Q22 to have improved even though credit easing policies have been
proposed. Real estate FAI will be the major drag in 1Q22.
Inflation
2022 inflation to average 2.2%, October headline CPI inflation reached a 12-month high with the support of food
higher than 2021 on pork and prices and energy prices. We expect that 4Q21 inflation will fall slightly but it will
oil prices at the start of the
year and firmer consumption
rise again in 1Q22. The annual inflation rate in 2022 will be higher than 2021 due
growth in 2H22 to high pork/oil prices at the start of the year and the improvement of consumer
spending. PPI will fall sharply in 2022 starting from 1Q22.

The December RRR cut, like The December RRR cut was a surprise as the PBoC inclination is to use structural and
the July move, was forward targeted tools to support the economy. We interpret it as forward looking; that is, it
looking
does not imply a series of general easing measures in coming months. Rather it is a
move ahead of an anticipated soft 1Q22, is designed to help create demand for local
government special bonds and is intended to reduce average funding costs without
having to resort to a cut in policy rates. We expect the liquidity freed up will be used
to support infrastructure projects, SMEs, green industrials and high-tech companies.
The stock growth of aggregate finance will accelerate through 2022. For the full year
aggregate finance growth will be slightly higher than 2021.
The 2022 growth target is not CLSA vs The Street

yet available. Our and the
GDP Inflation 1-year LPR rate CNY/USD
consensus number implies a
target of 5-5½% will be set in Government (2021) >6 (2021) ~3 n.a n.a.
recognition of the soft start to Consensus (2022) 5.3 (2021) 2.2 (end-22) 3.85 (end-22) 6.40
the year CLSA (2022) 5.4 (2021) 2.2 (end-22) 3.85 (end-22) 6.40
36 boyang.liu@clsa.com 10 December 2021

China EoAE Forecasts - 1Q22
China by numbers
2016 2017 2018 2019 2020 2021E 2022F 2023F
Final consumption¹ 4.5 3.9 4.3 3.5 (0.5) 4.4 3.3 3.5
Gross capital formation¹ 3.1 2.7 2.9 1.7 2.2 2.6 1.9 2.0
Net exports, goods & services¹ (0.8) 0.3 (0.5) 0.8 0.6 1.0 0.2 0.0
Primary industry 3.3 4.0 3.5 3.1 3.0 4.5 3.1 3.2
Secondary industry 6.0 5.9 5.8 4.9 2.6 7.8 5.0 5.3
Tertiary industry 8.1 8.3 8.0 7.2 2.1 11.0 8.3 8.5
Real GDP growth 6.8 6.9 6.7 6.0 2.3 8.0 5.4 5.5
Prices
Producer prices (average) (1.3) 6.3 3.5 (0.3) (1.8) 7.7 0.1 (0.2)
CNY/USD (y/e) 6.94 6.54 6.88 6.98 6.53 6.35 6.40 6.30
CNY/USD (average) 6.64 6.75 6.62 6.90 6.90 6.45 6.44 6.35
7-day repo rate (% y/e) 2.6 2.9 2.8 2.3 2.3 2.4 2.4 2.6
1 year LPR rate (% y/e)2 4.30 4.30 4.31 4.15 3.85 3.85 3.85 4.00
External sector
Exports (USD, %YoY) (7.2) 11.4 9.1 (1.3) 4.6 25.0 9.0 8.0
Imports (USD, %YoY) (4.2) 16.0 17.1 (2.1) (0.6) 29.0 8.0 5.0
Trade balance (USD bn) 488.9 475.9 380.1 393.0 515.0 564.0 640.8 774.9
Current account balance (USD bn) 191.3 188.7 24.1 102.9 274.0 320.0 345.0 300.0
- as a % of nominal GDP 1.7 1.5 0.2 0.7 1.9 1.8 1.8 1.5
FDI (USD bn) (41.7) 27.8 92.3 58.1 102.6 150.0 120.0 90.0
CA + net FDI (% GDP) 1.4 1.8 0.8 1.4 2.6 2.6 2.5 2.0
International reserves (USDbn, y/e) 3,010.5 3,139.9 3,072.7 3,107.9 3,216.5 3,260.0 3,283.0 3,300.0
Money supply
Money supply M2 (y/e) 11.3 8.1 8.1 8.7 10.1 9.0 8.5 8.4
Aggregate finance (net chg CNY tn) 17.8 49.9 21.1 24.2 33.5 29.9 33.4 36.5
Aggregate finance (y/e)3 12.8 14.1 10.3 10.7 13.3 10.5 10.8 10.5
Aggregate finance (% of GDP) 209.0 247.5 247.0 254.7 280.3 269.4 278.4 288.9
Government sector
General gov't balance (% GDP) (4.8) (4.1) (4.1) (5.0) (8.3) (6.0) (5.5) (4.0)
Nominal GDP
Nominal GDP (USD bn) 11,237 12,323 13,892 14,301 14,729 18,031 18,942 19,609
Nominal GDP per capita (USD) 8,125.1 8,865.6 9,958.3 10,214.7 10,431.7 12,733.8 13,339.4 13,770.4
Nominal GDP (CNY bn) 74,640 83,204 91,928 98,652 101,599 116,838 125,017 133,143
Nominal GDP (CNY, %YoY) 8.4 11.5 10.5 7.3 3.0 15.0 7.0 6.5
Other data
Urban FAI 8.1 7.2 5.9 5.4 2.9 5.5 3.8 5.5
Industrial production 6.0 6.6 6.2 5.7 2.8 9.8 4.7 6.6
Retail sales 10.4 10.2 9.0 8.0 (3.9) 12.6 5.3 7.2
Unemployment (% average) #N/A #N/A 4.9 5.2 5.6 4.8 4.6 4.6
Population (billions) 1.383 1.390 1.395 1.400 1.412 1.416 1.420 1.424
Note: %YoY rates unless otherwise stated. 1 Contributions to GDP growth 2 1-year Loan Prime Rate from 2019 onwards, previously 1-year bank best lending
rates 3 A definition change in the aggregate finance outstanding figures mean that the net change, %YoY and %GDP data do not cast for 2017. Source: Wind
Currency forecast
2019 2020 2021F 2022F 2023F 1Q21F 2Q22F 3Q22F 4Q22F
CNY/USD 6.98 6.53 6.35 6.40 6.30 6.45 6.50 6.40 6.40
CNY/JPY 100 6.43 6.31 5.67 5.57 5.63 5.61 5.56 5.52 5.57
CNY/GBP 9.25 8.86 8.45 8.51 8.63 8.45 8.32 8.32 8.51
CNY/EUR 7.83 8.00 7.11 7.04 7.25 7.10 6.96 6.98 7.04
10 December 2021 boyang.liu@clsa.com 37

Hong Kong EoAE Forecasts - 1Q22
Monetary tightening is underway

 We retain a 7% growth estimate for 2021 and a 4% forecast for 2022. Consumer spending will be the main growth
driver. Investment will start the year robust but Common Prosperity has flattened Hong Kong real estate inflation.
 This will continue. And the growth derived from Hong Kong’s entrepot trade will slow as world goods trade growth
decelerates. Additionally HKD liquidity will tighten. The HKMA has already started to shrink the aggregate balance.
 As USD rates rise, HKD rates will rise ahead of them. This minimises currency risk but means that the monetary
tightening in Hong Kong in 2022 will be among the greatest in Asia.
Growth
2021 growth estimated at 7% 2021 growth was strong; on 1Q to 3Q data we estimate 7% despite the borders
being closed. The borders will stay closed. Firstly because vaccine hesitant groups
in Hong Kong remain (and include the elderly). Second, because of the zero-Covid
policy in the Mainland. We assume that reopening of the border with the Mainland
will continue, economically this will bring benefits (though Beijing has discouraged
outbound tourism and anyway, Chinese tourists remain risk averse). But Hong
Kong’s borders with the rest of the world will remain closed. These parameters were
2022 growth will be slower already in place in our forecasts so there are few changes to the quantity and
composition of growth we expect for 2022. Private consumption drives 3.8ppts of
Consumption will continue to our 4% 2022 forecast. Investment should also contribute though Hong Kong’s real
provide the core of growth
estate cycle will be flattened by China’s Common Prosperity policy. Hong Kong’s
mass residential construction projects have become more tangible in the last few
But the contribution from trade months but they are too far forward to boost growth within our forecast horizon.
and investment will slow Monetary tightening (see below) will also act to slow growth (it will be the most
4% for 2022 and 2¾% for 2023
aggressive in Asia, albeit from the loosest starting point) as will slower growth of
trade through the Hong Kong port. We expect around 2¾% growth in 2023.
Inflation
Inflation around 2.9% in 2022 Stripped of one-off rebates, inflation peaked in 3Q21 and fell in 4Q. The 2.9% CY22
with ~0.4ppts added from one average we quote opposite is boosted by rebate effects in 3Q and were these
off rebates in the base
removed would be ~2½%. Hong Kong’s inflation is less sensitive to commodity prices
than other Asian economies but it should still fall in 2023. We expect just under 2%.

The HKMA started to shrink The HKD retreated from the top of the convertibility undertaking in late 2020 and
the aggregate balance in 4Q21 the aggregate balance (equivalent to excess reserves elsewhere) therefore remained
Money market rates have risen
constant at HKD460bn for most of 2021. In September however, the HKMA
relative to USD rates increased issuance of Exchange Fund bills, pre-emptively shrinking excess HKD
liquidity as US interbank conditions tightened. As the HKMA indicated when it
The positive HIBOR-LIBOR announced the policy, liquidity is still abundant. However, monetary conditions in
spread will continue
Hong Kong have already tightened; expectations of US rate hikes have increased
So as USD rates rise so will USD LIBOR and HKD HIBOR has risen relative to USD LIBOR. These trends will
HKD rates continue and short-dated HIBOR will rise substantially in 2022. We expect 3-month
HIBOR to rise to 1.5% by end-2022 assuming 3x25bp rate increases from the Fed
3mth HIBOR 1.5% by end-2022
and that, as has been typical since 2019, HIBOR trades at a premium to USD LIBOR.
The HKD may briefly move above its central parity of HKD7.80/USD in 1H22 as
global liquidity tightens but, as the HKMA reabsorbs the aggregate balance and
HKD rates rise, there is no reason to expect pressure on the HKD to be significant.
2022 official forecasts are not CLSA vs The Street

yet available. We are above GDP Inflation 3 month HIBOR HKD/USD
consensus on growth and
inflation for 2022. Government (2021) 6.1 (2021) 1.6 n.a n.a.
End-2022 HIBOR consensus is Consensus (2022) 3.0 (2022) 2.0 (end-22) 0.38 (end-22) 7.80
a forward rate & much too low CLSA (2022) 4.0 (2022) 2.9 (end-22) 1.50 (end-22) 7.80

Hong Kong EoAE Forecasts - 1Q22
Hong Kong by numbers

2016 2017 2018 2019 2020 2021E 2022F 2023F
Private consumption 2.0 5.5 5.3 (0.8) (9.9) 5.9 5.8 2.8
GFCF (0.1) 3.1 1.7 (14.9) (11.2) 11.3 4.5 4.1
Domestic demand (contr. to growth) 2.4 5.0 4.3 (3.7) (6.4) 5.9 4.5 2.8
Exports, goods & services 0.7 5.8 3.7 (6.1) (5.9) 17.0 7.7 4.5
Real GDP growth 2.2 3.8 2.8 (1.7) (6.1) 7.0 4.0 2.8
Prices
Consumer prices (y/e) 1.2 1.7 2.5 2.9 (0.9) 3.1 2.5 1.3
HKD/USD (y/e) 7.76 7.81 7.82 7.80 7.75 7.80 7.80 7.80
HKD/USD (average) 7.76 7.79 7.84 7.82 7.75 7.79 7.81 7.80
3-month HIBOR (% y/e) 1.02 1.31 2.33 2.43 0.35 0.40 1.50 1.75
External sector
Domestic exports (USD, % YoY) (9.0) 1.6 5.2 3.6 0.1 61.7 (6.3) 5.5
Re-exports (USD, % YoY) (0.7) 7.8 6.9 (4.1) (0.9) 25.0 6.1 1.7
Exports (USD, % YoY) (0.8) 7.6 6.9 (3.9) (0.9) 26.0 5.5 1.8
Imports (USD, % YoY) (1.3) 8.3 7.9 (6.4) (2.7) 24.8 5.3 0.5
Trade balance (USD bn) (54.4) (62.0) (72.0) (54.8) (44.2) (38.0) (50.6) (48.7)
FDI (USD bn) 57.7 24.0 22.0 20.5 17.0 48.1 36.4 35.7
CA + net FDI (% GDP) 21.9 11.6 9.8 11.5 11.5 18.3 13.2 13.6
Money supply
Money supply M1 (y/e) 12.3 9.8 (0.4) 2.6 30.1 12.2 8.0 4.6
Money supply M2 (y/e) 7.7 10.0 4.3 2.8 5.8 4.0 8.0 7.0
HKD bank lending (y/e) 7.9 19.7 8.9 6.6 (1.8) 5.6 7.8 6.5
HKD bank lending (% GDP) 179.9 201.6 205.9 218.6 227.3 224.8 228.8 241.5
Government sector
General gov’t balance (% GDP)¹ 4.6 5.9 2.5 (1.3) (9.6) (3.5) (1.5) (0.1)
Nominal GDP
Nominal GDP (USD bn) 320.8 341.2 361.6 363.1 346.5 369.2 389.3 407.8
Nominal GDP (HKD bn) 2,490.1 2,658.6 2,834.2 2,845.0 2,687.2 2,869.7 3,040.4 3,181.2
Nominal GDP (HKD, % YoY) 3.8 6.8 6.6 0.4 (5.5) 6.8 5.9 4.6
Other data
Visitor arrivals (4.5) 3.2 11.4 (14.2) (93.6) (97.4) 1,479.7 65.8
Retail sales (8.0) 2.3 8.7 (11.3) (24.2) 7.4 2.0 (1.5)
Unemployment (% y/e) 3.4 3.0 2.8 3.2 6.5 4.1 3.3 3.0
Note: % YoY rates unless otherwise stated. ¹ Fiscal year starting April. Source: CEIC, CLSA estimates, HK government.
Currency forecast
2019 2020 2021F 2022F 2023F 1Q22F 2Q22F 3Q22F 4Q22F
HKD/USD 7.80 7.75 7.80 7.80 7.80 7.81 7.82 7.81 7.80
HKD/JPY 100 7.19 7.49 6.96 6.78 6.96 6.79 6.68 6.73 6.78
HKD/GBP 10.35 10.52 10.37 10.37 10.69 10.23 10.01 10.15 10.37
HKD/EUR 8.75 9.49 8.74 8.58 8.97 8.59 8.37 8.51 8.58

India EoAE Forecasts - 1Q22
Shallow recovery
 We see a shallow recovery. Real GDP growth will rebound from the 7.3% contraction in FY21 to our 9.5% estimate in
FY22, flattered by base effects. GDP growth will moderate to our 8% forecast in FY23.
 We expect the RBI MPC to hike policy rates from April, by 100bp to 5% in FY23 with inflation set to average 5.6% in
FY22 and 5.5% in FY23.
 We expect the INR to mostly trade in a stable range of INR73-76.50/USD, underpinning our virtuous INR cycle call on
high FX reserves. Pre-tightening USD strength might take INR briefly lower around mid-2022.
Growth
Consumption to drive shallow We see a shallow recovery essentially driven by a rebound in consumption, with the
recovery Covid-19 shock hopefully done but with softer lending rates likely to persist. Real
GDP growth will rebound from 7.3% in FY21 to our 9.5% estimate in FY22 and
moderate to our 8% forecast in FY23. It will slip to 6% in FY24. Our proprietary
Activity Index underscores a soft recovery as well. Rural demand from higher
autumn kharif harvest farming income should offer support for now. At the same
time, insufficient river water for the winter wheat sowing is a worry. Despite several
government initiatives, investment will likely continue to lag, given excess capacity.
Softer lending rates, stable The Covid-19 shock to India’s economy unexpectedly solved two problems, but
rupee but a demand problem generated a new worry. Sustained monetary policy easing resolved the issue of high
real lending rates that had constrained growth since 2015, while the build-up of
foreign exchange reserves should stabilise the rupee even as the US Federal
Reserve begins its taper. However, the pandemic also generated a demand problem
that will need further supportive policy measures. Risks to our view are a melt-up
in yields on high domestic liquidity, or a fresh wave of infections.
Inflation
Inflation risk is expected to We forecast average inflation at 5.5% in FY23 and 5.0% in FY24. As this is around
subside as commodity prices the RBI's estimated growth maximising threshold inflation of 5.5%, there should not
flatten
be any undue pressure to tighten too rapidly. Key risks are oil prices and monsoons.
Policy and exchange rate

100bp RBI rate hike in FY23 We expect the RBI MPC to hike policy rates from April, by 100bp in FY23. This
assumes that India will be spared another Covid-19 shock. In tandem, we expect
government bond yields to rise to 6.75-7% by March 2022 (and 7.5% by March
2023). We expect lending rates to remain soft. They are unlikely to go up beyond
25bp by September 2022 and 50bp by September 2023. This, in turn, should push
up credit growth by 8% in FY22 and 12.5% in FY23.
Any INR weakness pre-Federal For most of FY22 and FY23 we expect the INR to trade in a stable range of
Reserve interest rate hike will INR73-76.50/USD, underpinning our virtuous cycle call for the currency due to
be temporary
high FX reserves. As the RBI’s high FX reserves can control depreciation, it will likely
allow the rupee to slip in mid-2022 if, as we expect, the USD makes one last push
higher ahead of the start of US rate increases. We expect the current account deficit
to remain well below the sustainable 2-2.5% range reported by several studies.
With the normalisation of economic activity, we forecast a current account swing
from the 0.9% surplus in FY21 to deficit, at -1.3% of GDP in FY22 and -1.5% in
FY23. This builds on our house call of oil peaking at end-2021.
Base effects generate a strong
CLSA vs The Street
FY22 growth number. We are a
little above the RBI on inflation GDP Inflation Policy rate INR/USD
but not by enough to make a Central bank (FY22) 9.5 (FY22) 5.3 n.a n.a.
difference. The consensus Consensus (FY22) 9.1 (FY22) 5.4 (end-FY22) 4.5 (March 22) 74.70
seems aggressive on rates, we
see tightening in FY23 CLSA (FY22) 9.5 (FY22) 5.6 (end-FY22) 4.0 (March 22) 76.20
40 indranil.sengupta@clsa.com 10 December 2021

India EoAE Forecasts - 1Q22
India by numbers
FY17 FY18 FY19 FY20 FY21 FY22E FY23F FY24F
GFCF 8.5 7.8 9.9 5.4 (10.8) 13.6 8.7 5.0
Real GDP 8.3 6.8 6.5 4.0 (7.3) 9.5 8.0 6.0
Prices
INR/USD (y/e) 64.84 65.04 69.17 75.39 73.50 76.20 75.00 76.50
INR/USD (average) 67.03 64.46 69.92 70.90 74.23 73.60 76.10 76.40
Repo rate (% y/e) 6.25 6.00 6.25 4.40 4.00 4.00 5.00 5.50
Reverse repo rate (% y/e) 5.75 5.75 6.00 4.00 3.35 3.35 4.35 4.85
External sector
Exports (USD, %YoY) 5.2 10.3 9.1 (5.0) (7.5) 27.0 9.5 11.0
Imports (USD, %YoY) (1.0) 19.5 10.3 (7.6) (16.6) 37.4 11.0 11.0
Current account balance (USD bn) (14.4) (48.7) (57.2) (24.6) 24.0 (39.2) (51.8) (67.3)
- as a % of nominal GDP (0.6) (1.8) (2.1) (0.9) 0.9 (1.3) (1.5) (1.8)
FDI (USD bn) 35.6 30.3 30.7 43.0 44.0 40.0 45.0 50.0
CA + net FDI (% GDP) 0.9 (0.7) (1.0) 0.6 2.6 0.0 (0.2) (0.5)
External debt (total, USD bn) 471.3 529.3 543.1 558.4 570.0 588.2 600.2 612.2
Debt service ratio (% exports) 8.3 7.5 6.4 6.5 8.2 n.a. n.a. n.a.
Money supply
Money supply M1 (y/e) 3.1 21.8 13.6 11.2 16.2 16.0 14.0 14.0
Money supply M3 (y/e) 10.1 9.2 10.5 8.9 12.2 11.5 14.0 14.0
Government sector
Central gov’t balance (% GDP) (3.5) (3.5) (3.4) (4.6) (9.2) (7.2) (6.2) (5.5)
General gov’t balance (% GDP) (6.9) (5.8) (5.8) (6.9) (7.1) (11.2) (9.7) (9.0)
Central gov’t debt (% GDP, y/e) 45.1 45.6 44.8 46.5 58.9 60.1 59.8 58.3
Nominal GDP
Nominal GDP per capita (USD) 1,767.7 2,017.7 2,035.7 2,140.3 1,966.5 2,238.7 2,448.4 2,692.3
Nominal GDP (INR bn) 153,917 170,900 188,870 203,510 197,457 227,075 257,730 287,369
Nominal GDP (INR, %YoY) 11.8 11.0 10.5 7.8 (3.0) 15.0 13.5 11.5
Other data
Industrial production 4.6 4.4 3.8 (0.8) (8.5) 9.1 7.0 5.0
Population (millions) 1,299 1,314 1,327 1,341 1,356 1,370 1,383 1,397
Note: All figures % YoY growth rates, unless otherwise stated. All data refer to fiscal years ending March. Source: Reserve Bank of India, CEIC, CLSA estimates
Currency forecast
2019 2020 2021F 2022F 2023F 1Q22F 2Q22F 3Q22F 4Q22F
INR/USD 71.27 73.05 75.40 75.50 76.50 76.20 77.50 76.50 75.50
INR/JPY 100 65.62 70.61 67.32 65.65 68.30 66.26 66.24 65.95 65.65
INR/GBP 94.48 99.07 100.28 100.42 104.81 99.82 99.2 99.45 100.42
INR/Euro 79.92 89.45 84.45 83.05 87.98 83.82 82.93 83.39 83.05
10 December 2021 indranil.sengupta@clsa.com 41

Indonesia EoAE Forecasts - 1Q22
Focusing on foreign investment

 The commodity boom will facilitate economic recovery but as the cycle starts to turn down (by mid-year), a new
investment and credit cycle will be needed to drive our GDP forecast for 6% growth in 2022 and 5.5% in 2023.
 Financing by the sovereign wealth fund will bypass the fiscal constraint on infrastructure. FDI in the manufacturing
sector will focus on the electric vehicle sector with the lure provided by Indonesia’s extensive nickel reserves.
 The low minimum wage rise will help contain inflation risk delaying an interest rate rise to 2H22. As the current
account swings back to deficit, Indonesia will boost foreign capital inflow by offering commercial fishing rights.
Growth
The commodity cycle will boost The rising commodity cycle has been a windfall for the economy. Soaring
recovery prospects but may commodity exports have offset Covid-suppressed domestic demand and stabilised
have only six months left to run
the balance of payments, thereby strengthening economic recovery prospects.
However, the commodity boost may have only four to six months left to run on our
expectation of the cycle turning down by mid-2022 with weakening global demand.
This underlines the need for an investment and credit cycle to drive growth. Both
infrastructure spending and rising foreign investment in the manufacturing sector
will be relied on as investment drivers for our real GDP forecast from 3.6% in 2021
to 6% in 2022 and 5.5% in 2023.
SWF for infrastructure Since infrastructure spending will be fiscally constrained, financing will be sought
financing; nickel reserves will from the Indonesia Investment Authority (INA) sovereign wealth fund. The
lure FDI in the EV sector
government has injected IDR60tn funding, only a quarter of which is from the
budget. The remainder is in the form of state bank equity. An investment framework
agreement was signed with the Abu Dhabi Growth Fund following its USD10bn
investment in March 2021. The INA has also signed a strategic alliance with Dubai’s
DP World for a USD7.5bn investment in Indonesia’s maritime and port sector. The
lure for FDI in the electric vehicle sector is access to Indonesia’s nickel reserves.
Inflation
Inflation will rise but remain Inflation will rise as economic reopening unleashes domestic demand. However, a
within BI’s target; minimum doubling of average inflation from around 1.5% in 2021 will still leave it within BI’s
wage rise has been capped
2-4% target delaying an interest rate rise to 2H22. The national minimum wage rise
in 2022 has been capped at 1.1% YoY (but has triggered nationwide strikes).

Public debt will be kept below Public debt will continue to rise but will be kept below the 60% of GDP stress level,
60% of GDP; fiscal risk stems in contrast to other emerging Asean economies. Even so, high fiscal risk stems from
from the low tax revenue base
Indonesia’s low tax revenue base. Revenues will be shored up by a 1ppt rise in the
VAT rate to 11% from April 2022 along with another tax amnesty and tightened
compliance in a vain effort to lower the fiscal deficit to 3% of GDP by 2023.
Indonesia will offer commercial The commodity boom carried the current account into surplus in 2021 but there
fishing rights in an effort to will be a swing back to deficit when domestic demand rebounds in 2022 and 2023.
boost foreign capital inflow
The need for much higher FDI will intensify as the commodity cycle turns down (by
mid-2022, we expect). In an effort to boost foreign capital inflow, the government
will offer commercial fishing rights at an estimated IDR110.2tn (USD7.7bn)
annually. This would increase IDR exchange rate resilience over the next two years,
Our higher GDP forecast, depending on how efficiently the plan is implemented.
compared with BI and
consensus, is contingent on a
new investment cycle. CLSA vs The Street
Consensus agrees that inflation GDP Inflation Policy rate IDR/USD
will be contained in BI’s target Government (BI) (2022) 4.7 to 5.5 (2022) 2-4 n.a. n.a.
but discounts (fully) only one
Consensus (2022) 5.2 (2022) 2.9 (end-22) 3.85 (end-22) 14,300
25bp rise in 2022. Consensus is
more sanguine on the IDR. CLSA (2022) 6.0 (2022) 2.9 (end-22) 4.00 (end-22) 14,800
42 tony.nafte@clsa.com 10 December 2021

Indonesia EoAE Forecasts - 1Q22
Indonesia by numbers
2016 2017 2018 2019 2020 2021E 2022F 2023F
Public consumption (0.1) 2.1 4.8 3.3 1.9 3.5 (0.1) 0.3
GFCF 4.5 6.2 6.7 4.5 (4.9) 4.2 8.7 8.5
Exports, goods & services (1.7) 8.9 6.5 (0.9) (7.7) 23.6 9.4 6.0
Imports, goods & services (2.4) 8.1 12.1 (7.4) (14.7) 22.7 14.7 9.0
Real GDP growth 5.0 5.1 5.2 5.0 (2.1) 3.6 6.0 5.5
Prices
Producer prices (y/e) 3.3 3.1 3.0 0.5 1.1 5.8 4.1 2.8
IDR/USD (y/e) 13,436 13,548 14,481 13,901 14,105 14,400 14,800 14,500
IDR/USD (average) 13,309 13,381 14,238 14,148 14,582 14,332 14,775 14,600
BI policy rate (% y/e) 4.75 4.25 6.00 5.00 3.75 3.50 4.00 4.75
Base lending rate (% y/e) 11.36 10.68 10.34 10.03 9.15 8.50 9.00 9.75
External sector
Exports (USD, % YoY) (3.1) 16.9 7.0 (6.8) (3.0) 40.0 7.8 4.1
Imports (USD, % YoY) (4.4) 16.2 20.6 (8.8) (18.1) 36.5 16.8 13.5
Trade balance (USD bn) 15.3 18.8 (0.2) 3.5 28.2 44.2 31.0 12.1
Current account balance (USD bn) (17.0) (16.2) (30.6) (30.3) (4.5) 3.1 (10.0) (30.5)
- as a % of nominal GDP (1.8) (1.6) (2.9) (2.7) (0.4) 0.3 (0.8) (2.2)
FDI (USD bn) 16.1 18.5 12.5 20.5 14.1 20.7 26.1 31.9
CA + net FDI (% GDP) (0.1) 0.2 (1.7) (0.9) 0.9 2.0 1.3 0.1
Gross external financing requirement % GDP 7.8 7.0 8.2 8.1 6.1 6.1 6.3 6.1
Money supply
Money supply M1 (y/e) 17.3 12.4 4.8 7.4 18.5 15.0 14.0 12.0
Money supply M2 (y/e) 10.0 8.3 6.3 6.5 12.5 9.0 12.0 13.0
Private sector credit (y/e) 7.8 8.2 11.7 5.9 (2.6) 3.8 11.0 14.0
Government sector
Public sector balance (% GDP) (2.5) (2.5) (1.8) (2.2) (6.1) (5.7) (4.9) (3.5)
Public sector debt (% GDP, y/e) 28.3 29.4 29.8 30.2 39.4 42.7 45.2 46.0
Nominal GDP
Nominal GDP (USD bn) 932 1,016 1,042 1,119 1,127 1,167 1,243 1,365
Nominal GDP (IDR tn) 12,402 13,590 14,839 15,833 15,434 16,724 18,369 19,932
Nominal GDP (IDR, % YoY) 7.6 9.6 9.2 6.7 (2.5) 8.4 9.8 8.5
Other data
Industrial production 4.3 4.3 4.3 3.8 (2.9) 4.3 5.0 4.8
Unemployment (% y/e) 5.6 5.5 5.4 5.3 7.1 6.7 5.4 5.2
Note: % YoY rates unless otherwise stated. Ross external financing requirement is current account deficit plus debt amortisation Policy rate changed from 1-yr
BI to 7-day repo rate effective August 2016. Source: IMF, CEIC, CLSA estimates, Bank Indonesia
Currency forecast
2019 2020 2021F 2022F 2023F 1Q22F 2Q22F 3Q22F 4Q22F
IDR/USD 13,901 14,105 14,400 14,800 14,500 14,500 15,000 15,000 14,800
IDR/Yen 100 12,799 13,634 12,857 12,870 12,946 12,609 12,821 12,931 12,870
IDR/GBP 18,429 19,130 19,152 19,684 19,865 18,995 19,200 19,500 19,684
IDR/Euro 15,587 17,271 16,128 16,280 16,675 15,950 16,050 16,350 16,280
10 December 2021 tony.nafte@clsa.com 43

Korea EoAE Forecasts - 1Q22
Reopening boost for 2022 but lurking Covid risk

 ‘Living with endemic Covid’ policy is being tested by flare-ups but society will remain largely open. Strong consumer
spending recovery and exports in 4Q will lift GDP growth to 3.8%, close to BoK’s 4% target, in 2021.
 With an effective policy balance between managing the pandemic and containing inflationary pressure, domestic
demand will offset slowing export growth for our 3.1% GDP growth forecast in 2022.
 Inflation has risen faster than expected but will subside in 2022. BoK raised rates twice in 2021 and, with sustained
robust economic growth, is likely to raise rates by another 50bp to 1.5% in 2022.
Growth
Living with Covid policy is Despite a weak 3Q, we estimate Korean 2021 growth will come close to the Bank
being tested by flare-ups but of Korea’s (BoK) target of 4%. Our estimate is 3.8%. After vaccination rates reached
society will remain largely open
critical mass, society had been largely reopened as the government committed to
living with endemic Covid. However, as case numbers re-escalated hitting record
levels, some restrictions on gatherings have been reintroduced. We believe society
will remain largely open as the government is unwilling to incur more economic
damage through prolonged restrictions.
Returning to normal will boost Returning to normalcy will allow both private consumption and investment to
domestic demand which will recover in the first half of 2022. Strong global trade and fewer supply bottlenecks
offset net export drag
in the auto industry will boost export growth. With strengthening domestic demand
Export growth will slow in though, import growth will be even faster. Global demand moreover, will likely peak
2H22 by mid-2022 and then gradually weaken. In 2022, an effective policy balance
between managing the pandemic and containing inflationary pressure will ensure
that expanding domestic demand will offset slowing export growth and the
resulting drag from net exports. Our GDP growth forecast in 2022 is 3.1%, which
factors in moderating growth in 2H, as global trade growth slows.
2.8% growth in 2023 will match For 2023 we forecast 2.8% GDP growth as Korea will have effectively returned to
the annual average growth rate its pre-pandemic growth trend. Growth averaged 2.8% in the five years to 2019.
in 2014-19
Inflation
Inflation picks up in 4Q but will With loose monetary conditions and strained supply chains, global inflation readings
moderate in 2022 have remained high. Oil and producer prices rose faster than we expected in 4Q21
before the onset of the Omicron variant hit oil prices. We revise up our end-2021
inflation estimate to 4.1%. In 2022 supply chain problems will gradually be resolved
and central banks, including the BoK, will tighten monetary policy. Inflation will be
largely under control by mid-year, and will fall to our 2.0% forecast by end-2022.

As expected the BoK raised We were correct in arguing that the BoK would raise its policy rate twice in 2021.
rates; we forecast another The bank is worried by high levels of household debt and will have room to raise
50bp rise in 2022
further if economic growth remains robust. That said, the vote to raise rates was
not unanimous in the November policy meeting, indicating dovish advocates.
KRW to soften in 1H22, firmer Unilateral USD strength means that we expect the KRW to soften in 1H22. It should
in 2H22 and 2023 but initial be able to trade more confidently in 2H22 and 2023. However, Korea leads AxJ in
recovery slow
its interest rate cycle and will stop tightening sooner than the majority. Alongside
reduced financial flows into cyclical stocks, this will weigh on the KRW recovery.
Our GDP forecast is slightly CLSA vs The Street

above BoK and consensus. We GDP Inflation Policy rate KRW/USD
forecast higher inflation Bank of Korea (2022) 3.0 (2022) 2.0 n.a n.a.
though, a bigger rise in interest
Consensus (2022) 3.0 (2022) 1.7 (end-22) 1.35 (end-22) 1,145
rates and a weaker exchange
rate than consensus CLSA (2022) 3.3 (2022) 2.9 (end-22) 1.50 (end-22) 1,230
44 max.kaernfelt@clsa.com 10 December 2021

Korea EoAE Forecasts - 1Q22
Korea by numbers
2016 2017 2018 2019 2020 2021E 2022F 2023F
GFCF 6.6 9.8 (2.2) (2.1) 2.6 2.4 2.7 2.4
Exports, goods & services 2.4 2.5 4.0 0.2 (1.8) 9.2 4.7 2.7
Real GDP growth 2.9 3.2 2.9 2.2 (0.9) 3.8 3.1 2.8
Prices
Producer prices (y/e) 1.8 2.2 0.9 0.7 0.2 7.2 0.2 0.7
KRW/USD (y/e) 1,209 1,071 1,118 1,158 1,088 1,190 1,230 1,150
KRW/USD (average) 1,161 1,131 1,100 1,165 1,180 1,145 1,218 1,197
BoK Base rate (y/e) 1.25 1.50 1.75 1.25 0.50 1.00 1.50 1.50
3-year Treasury (y/e) 1.64 2.14 1.82 1.36 0.98 1.80 2.30 2.20
External sector
Exports (USD, % YoY) (5.7) 13.4 7.9 (11.1) (7.2) 23.0 9.3 2.3
Imports (USD, % YoY) (6.5) 18.0 10.6 (7.6) (8.8) 28.5 11.3 1.6
FDI (USD bn) (17.8) (16.2) (26.0) (25.6) (23.3) (28.8) (29.0) (31.0)
CA + net FDI (% GDP) 5.3 3.6 3.0 2.1 3.2 2.8 0.8 1.8
Money supply
Money supply M1 (y/e) 12.4 6.9 1.9 9.6 25.6 14.3 10.9 10.5
Money supply M2 (y/e) 7.5 4.7 6.8 7.9 9.8 11.5 10.9 10.4
Government sector
Central gov’t balance (% GDP) 1.0 1.3 1.6 (0.6) (3.7) (4.4) (4.0) (2.9)
- excl social sec funds (% GDP) (1.3) (1.0) (0.6) (2.8) (5.8) (6.6) (6.2) (5.1)
Central gov’t debt (% GDP, y/e) 34.0 34.2 34.3 36.3 42.4 46.5 49.7 40.0
Nominal GDP
Nominal GDP (KRW tn) 1,740.8 1,835.7 1,898.2 1,924.5 1,933.2 2,056.8 2,149.9 2,249.9
Nominal GDP (KRW, % YoY) 5.0 5.5 3.4 1.4 0.4 6.4 4.5 4.7
Other data
Retail sales 3.9 3.7 5.6 1.8 0.4 7.5 9.3 4.9
Unemployment (% y/e) 3.7 3.7 3.9 3.6 4.3 3.9 3.8 3.9
Note: % YoY rates unless otherwise stated. Source: IMF, World Bank, Bank of Korea, CEIC
Currency forecast
2019 2020 2021F 2022F 2023F 1Q22F 2Q22F 3Q22F 4Q22F
KRW/USD 1,158 1,088 1,190 1,230 1,150 1,200 1,235 1,230 1,230
KRW/JPY 100 1,066 1,052 1,063 1,070 1,027 1,043 1,056 1,060 1,070
KRW/GBP 1,535 1,476 1,583 1,636 1,576 1,572 1,581 1,599 1,636
KRW/EUR 1,298 1,332 1,333 1,353 1,323 1,320 1,321 1,341 1,353
10 December 2021 max.kaernfelt@clsa.com 45

Malaysia EoAE Forecasts - 1Q22
Expect a comeback of domestic demand

 Base effect and reopening boost mean that domestic demand will drive growth in 2022. Investment, particularly in the
E&E sector, is expected to gain traction, benefitting from a return of public investment and more from FDI inflows.
 Persistent external demand to sustain exports, though stronger imports will lead to a moderation of current account
surplus. Robust FDI to support balance of payments strength, stabilising reserves level amid high external uncertainties.
 We maintain the view of 2x25bp rate hikes in 2022. Downward pressure on MYR is expected to ease around the
middle of 2022. A 2.7% depreciation in 2022 will be fully reversed after a 6.6% appreciation in 2023.
Growth
COVID flare-ups held back Severe disruption from the Delta variant outbreak led to a delayed recovery of the
recovery on the domestic side economy with persistent weaknesses in private consumption and investment. In
in 2021
contrast to lacklustre domestic sectors, goods exports have continued to hit new
records and are expected to stay resilient heading into 2022. Following a sharp
contraction in 3Q, we maintain our 2021 growth estimate at 3.1% as in the 4Q
EoAE.
FDI driven investment to lead Contingent on successfully containing further COVID outbreaks, both private
growth in 2022, key to sustain consumption and investment will lead growth in 2022, bouncing from the low base.
exports by expanding capacity
Greater strength is expected from the latter given its underperformance before the
pandemic. Specifically a downward trend in public investment since 2017 is
expected to reverse, though at a moderate pace given the tight fiscal condition.
Investment would also be boosted by FDI into key sectors such as E&E, where
surging exports demands triggered renewed interest in foreign investors and a call
for investment to upgrade capacity. In the absence of a sharp fall in commodity
prices, exports will retain strong growth but at a rate slower than imports as
domestic demand rebounds. We expect 6.8% full year growth in 2022, which is
above consensus and trend, followed by a subsequent normalisation to 4.3% in
2023.
Inflation
A moderate pickup in core Demand price pressures have been missing since the pandemic. Gradual opening-
inflation with limited upside up of the economy will push core inflation up from the current below 1% level, with
risks to the headline
lingering supply chain disruption adding uncertainties in the near term. However,
upside risks to inflation are limited. As the base effect quickly runs out in early
2022, headline inflation is expected to ease down to 2.2% by end-2022 from above
3% at end-2021.

Early rate hikes by BNM are Accelerated liquidity tightening by major central banks will be a push for BNM to
still expected act earlier, with the first hike likely to come in mid-2022. 2x25bp rates increases
will raise the policy rate to 2.25% by end 2022, with further hikes to be expected
in 2023. Front-loaded USD strengthening going into the tightening cycle will
support our forecast of a weak MYR in 1H22. Continuing FDI inflows and a still
large current account surplus will add to the strength in the balance of payments,
sustaining foreign reserves level during a period of currency weakness. Following a
3.8% depreciation of MYR against USD in 1H, we expect MYR/USD to strengthen
to 4.37 by end-2022 with a further 6.6% appreciation forecast in 2023.
We’re more bullish on growth CLSA vs The Street

than the official and consensus GDP Inflation Policy rate MYR/USD
forecasts. Weaker currency
outlook is expected in 2022 Government (2022) 5.5 to 6.5 (2022) 2.1 n.a n.a.
amid USD strength Consensus (2022) 5.7 (2022) 1.9 (end-22) 2.10 (end-22) 4.13
CLSA (2022) 6.8 (2022) 2.3 (end-22) 2.25 (end-22) 4.37
46 viola.wang@clsa.com 10 December 2021

Malaysia EoAE Forecasts - 1Q22
Malaysia by numbers
2016 2017 2018 2019 2020 2021E 2022F 2023F
GFCF 2.6 6.1 1.4 (2.1) (14.5) 1.7 15.5 6.9
Real GDP growth 4.4 5.8 4.8 4.4 (5.6) 3.1 6.8 4.3
Prices
Consumer prices (average) 2.1 3.8 1.0 0.7 (1.1) 2.4 2.3 1.9
Producer prices (y/e) 6.5 0.3 (3.7) 3.5 (2.1) 8.0 2.5 1.0
MYR/USD (y/e) 4.49 4.06 4.14 4.09 4.01 4.25 4.37 4.10
MYR/USD (average) 4.15 4.16 4.17 4.17 4.11 4.22 4.39 4.15
Overnight policy rate (% y/e) 3.00 3.00 3.25 3.00 1.75 1.75 2.25 2.75
External sector
Exports (USD, % YoY) (5.2) 12.7 10.2 (4.1) (6.0) 25.7 7.8 8.9
Imports (USD, % YoY) (3.9) 13.0 11.3 (5.7) (8.9) 26.5 13.2 9.6
FDI (USD bn) 3.3 3.8 2.5 1.6 0.7 5.5 6.2 4.9
CA + net FDI (% GDP) 3.5 4.0 2.9 3.9 4.4 5.3 4.9 4.2
Debt service ratio (% exports) 23.4 14.0 10.6 11.0 13.7 12.5 11.2 10.8
Money supply
Money supply M1 (y/e) 5.6 11.0 1.2 5.8 15.7 8.5 5.5 4.0
Money supply M3 (y/e) 3.2 4.9 9.1 3.5 4.0 5.4 7.1 6.8
Government sector
Nominal GDP
Nominal GDP (MYR bn) 1,250 1,372 1,448 1,513 1,417 1,540 1,694 1,801
Nominal GDP (MYR, % YoY) 6.2 9.8 5.5 4.5 (6.4) 8.7 10.0 6.4
Other data
Unemployment (% y/e) 3.5 3.4 3.3 3.2 4.8 4.2 3.7 3.4
Note: % YoY rates unless otherwise stated. Source: CEIC, Bank Negara Malaysia, IMF, Bloomberg, CLSA estimates
Currency forecast
2019 2020 2021F 2022F 2023F 1Q22 2Q22 3Q22 4Q22
MYR/USD 4.09 4.01 4.25 4.37 4.10 4.35 4.42 4.40 4.37
MYR/JPY 100 3.77 3.88 3.79 3.80 3.66 3.78 3.78 3.79 3.80
MYR/GBP 5.42 5.44 5.65 5.81 5.62 5.70 5.66 5.72 5.81
MYR/EUR 4.59 4.91 4.76 4.81 4.72 4.79 4.73 4.80 4.81
10 December 2021 viola.wang@clsa.com 47

Philippines EoAE Forecasts - 1Q22
Election year: Opportunity and uncertainty

 Domestic demand rebound spurred by economic reopening and reinforced by the traditional pre-election spending
binge will lead to accelerating growth early in the year lifting our GDP forecast to 6.6% in 2022.
 If the reform bills are all signed into law ahead of the election, the investment cycle will be strengthened and
prolonged, for accelerating GDP growth to our 6.8% forecast in 2023.
 Facing tightening global liquidity with risk exposure from the twin deficits (current account and fiscal), BSP will re-
assess its monetary stance. We forecast a 50bp interest rate rise in 2H22 and another 50bp rise in 1H23.
Growth
Domestic demand rebound Domestic demand rebound spurred by economic reopening is a welcome prospect
coming out of Covid reinforced going into 2022, as the Philippines emerges from Covid. This is also true of other
by pre-election spending
emerging Asean economies. The Philippines though, will have the additional spur to
recovery from the traditional ‘spending and handouts binge’ ahead of the May 2022
election. The combined effect will be accelerating growth early in the year which
will lift real GDP growth, coming off the relatively low 2021 base with estimated
4.4% growth, to our 6.6% forecast in 2022. A new administration though, will
introduce uncertainty on the continuity of economic management, specifically
infrastructure spending for a sustained investment uptrend.
Reform bills to facilitate FDI There are other uncertainties. A fully vaccinated rate of only 35% (5 December)
have progressed but have not leaves the Philippines exposed to the new Omicron strain. On the economic front,
yet passed the finishing line
reform bills to facilitate FDI have progressed but not yet passed into law. The Retail
Trade Liberalization Act which lowers the paid-up capital requirements for foreign
retail enterprises and the Foreign Investment Act which allows 100% foreign equity
in domestic market enterprises (excluding the negative list) have cleared the House
and the Senate. The Public Service Act which will allow higher foreign ownership in
telecommunications and transportation is pending in the Senate. If these are all
signed into law ahead of the election, the investment cycle will be strengthened
and prolonged, for accelerating GDP growth to our 6.8% forecast in 2023. Relations
with China, crucial for trade and investment, are the other big uncertainty.
Inflation
Average inflation will persist at The Philippines has been the outlier in emerging Asean with high inflation, in the
the top end of BSP’s 2-4% absence of demand price pressure, reflecting vulnerability to high energy prices and
target in 2022
climatic disasters. While we expect commodity prices to decline, strengthening
domestic demand will keep inflation at the top end of BSP’s 2-4% target in 2022.

BSP will start to re-assess its Bank credit gradually picked up in late 2021 with credit card debt turning positive
monetary stance YoY for the first time in October. BSP will start to re-assess its monetary stance
noting the banking sector’s rising exposure to the property sector. Facing tightening
global liquidity with risk exposure from the twin deficits (current account and fiscal),
BSP will raise interest rates by 50bp to 2.5% in 2H22 and by 50bp to 3% in 1H23.
Public debt above the 60% of Fiscal and debt management will be complicated by the Supreme Court ruling,
GDP stress level leaves the expanding local governments’ share of national taxes, starting in 2022. Rising public
peso exposed
debt above the 60% of GDP stress level leaves the peso exposed underlining the
importance of passing the reform bills for rising private sector investment and FDI.
Like us, BSP and consensus
expect a strong GDP rebound
in 2022. However, we think CLSA vs The Street
that high inflation will persist GDP Inflation Policy rate PHP/USD
while the twin deficits leave Government (2022) 7.0 (2022) 3.3 n.a. n.a.
the PHP exposed. We forecast
a 50bp rate rise while Consensus (2022) 6.6 (2022) 3.2 (end-22) 2.30 (end-22) 51.20
consensus only expects 25bp CLSA (2022) 6.6 (2022) 4.0 (end-22) 2.50 (end-22) 53.00

Philippines EoAE Forecasts - 1Q22
Philippines by numbers
2016 2017 2018 2019 2020 2021E 2022F 2023F
GFCF 20.9 10.6 12.9 3.9 (27.5) 9.7 15.6 16.4
Exports, goods & services 9.2 17.4 11.8 2.6 (16.3) 6.5 7.0 6.0
Imports, goods & services 18.8 15.1 14.6 2.3 (21.6) 12.3 10.0 8.4
Real GDP growth 7.1 6.9 6.3 6.1 (9.6) 4.4 6.6 6.8
Prices
Producer prices (y/e) (4.2) (1.1) (23.9) (4.1) (3.7) 0.8 4.5 2.6
PHP/USD (y/e) 49.81 49.92 52.72 50.74 48.04 51.00 53.00 54.00
PHP/USD (average) 47.49 50.40 52.66 51.80 49.62 49.39 53.06 53.40
Overnight repo rate (% y/e) 3.00 3.00 4.75 4.00 2.00 2.00 2.50 3.00
Interbank call loan rate (%y/e) 2.52 3.07 4.95 3.97 2.00 2.00 2.75 3.00
External sector
Exports (USD, % YoY) (1.1) 21.2 0.3 2.9 (9.8) 12.3 6.8 5.9
Imports (USD, % YoY) 17.7 17.6 11.9 (0.2) (20.2) 20.3 10.5 10.7
Current account balance (USD bn) (1.2) (2.1) (8.9) (3.0) 11.1 (0.8) (6.3) (12.5)
- as a % of nominal GDP (0.4) (0.7) (2.6) (0.8) 3.1 (0.2) (1.6) (2.9)
FDI (USD bn) 5.9 7.0 5.8 5.3 3.1 4.2 6.0 7.4
CA + net FDI (% GDP) 1.5 1.5 (0.9) 0.6 3.9 0.9 (0.1) (1.2)
Gross external financing requirement % GDP 6.6 6.5 8.1 7.3 9.0 9.4 9.5 9.1
Money supply
Money supply M1 (y/e) 15.1 15.7 9.5 15.7 21.2 14.0 16.0 18.5
Money supply M3 (y/e) 12.8 11.9 9.5 11.5 9.6 9.5 13.0 15.0
Private sector credit (y/e) 17.3 19.4 15.7 10.9 (0.7) 3.8 12.0 16.0
Government sector
Public sector deficit (% GDP) (2.3) (2.1) (3.1) (3.4) (7.6) (9.1) (7.5) (5.9)
National gov’t debt (% GDP, y/e) 40.2 43.1 42.6 42.1 57.2 63.7 66.8 67.5
Nominal GDP
Nominal GDP (PHP bn) 15,132 16,557 18,265 19,518 17,939 19,185 21,107 23,379
Nominal GDP (PHP, % YoY) 8.5 9.4 10.3 6.9 (8.1) 7.0 10.0 10.8
Other data
Unemployment (% year average) 5.7 5.4 5.3 5.1 11.2 7.4 5.9 5.4
Note: % YoY rates unless otherwise stated. Overnight policy rate repositioned from 4% to 3% effective June 2016.
Source: IMF, IFS, CEIC, CLSA estimates, National Statistical Coordination Board, Philippines, Treasury, IIF
Currency forecast
2019 2020 2021F 2022F 2023F 1Q22F 2Q22F 3Q22F 4Q22F
FPHP/USD 50.74 48.04 51.00 53.00 54.00 53.00 53.75 53.50 53.00
PHP/JPY 100 46.72 46.43 45.54 46.09 48.21 46.09 45.94 46.12 46.09
PHP/GBP 67.27 65.15 67.83 70.49 73.98 69.43 68.80 69.55 70.49
PHP/EUR 56.90 58.82 57.12 58.30 62.10 58.30 57.51 58.32 58.30

Singapore EoAE Forecasts - 1Q22
Gradually back to normal

 Re-opening boost has yet to be fully realized as cautious households delayed consumption until next year. Investment
and goods exports will stay robust. Additional strength is expected from services trade.
 Reasonably high inflation will continue into 2022 with pressure from both the demand and supply sides. Price pressures
will moderate as the year progresses but, with a whole year average at 2%, we are above the consensus.
 Solid inflation supports our view that MAS will continue policy tightening in April to 2-3% appreciation gradient for
SGD NEER. SGD/USD will end 2022 flat as weakness in 1H fully recovers in 2H and outperforms Asian peers.
Growth
Investment and exports led Singapore was one of the first in the region to move to the ‘living with COVID’ policy
growth in 2021 despite a slow and has so far gradually opened up its border. Despite generous income support and
return of private consumption
a double-digit private consumption slump in 2020, recurring COVID outbreaks had
households remain cautious on spending. In contrast, strong global manufacturing
demand and a lack of investment going into the pandemic have led to a rebound in
investment. Further benefitting from a boom in exports, we expect 6.9% full year
growth for 2021.
A new investment cycle is Growth of 4.7% in 2022 will be driven by both domestic demand and exports. A
expected to drive above recovery of private consumption, though likely gradual, is expected as confidence is
consensus growth in 2022
regained. The resumption of construction and continuous expansion of
manufacturing capacity will sustain investment growth, raising hopes for a new
investment cycle. Following the momentum in 2021, externally oriented sectors will
keep outperforming in early 2022 while global demand stays robust. A gradual
Fiscal balance will take time to
return to surplus, due to
acceleration of services trade, especially business services, will add additional boost
increasing long-term to exports going into the later part of the year. With a stabilised macro environment,
expenditures the government will start unwinding short-term fiscal support. However, a
permanently higher fiscal burden due to surging healthcare costs and an ageing
population will only see a slow return of budget surplus in 2023 and likely bring back
the discussion on tax hikes.
Inflation
We expect inflation to Higher import prices and domestic demand will see headline inflation above 3%
moderate gradually next year, going into next year. Rising COE prices will offset the declining price pressures from
eyeing an annual average at 2%
fuels, assuming a stable oil prices outlook, and sustain transport inflation in early
2022. Rising housing prices and labour costs remain potential upside risks to
inflation, though both are expected to cool down with the return of construction
and migrant labourers. We forecast headline inflation to average 2% in 2022, with
price pressures easing gradually as the year progresses.

Further tightening will increase Firming inflation will give MAS more assurance towards another policy tightening
SGD NEER appreciation in April, increasing the slope of SGD NEER appreciation to 2-3% per annum. This
gradient to 2.5% in April policy
meeting next year
will be higher than the assumed neutral stance before the pandemic, when both
inflation and growth outlooks were weaker. Despite the increase in SGD NEER
Weakness in SGD/USD in gradient, we expect the SGD to weaken against the USD in 1H22 amid ongoing
1H22 to be fully recovered by USD strength, though the crawling peg scheme means it will be an outperformer
end-2022
among Asian currencies and fully recover the loss in 2H22. 2023 will see further
strengthening of SGD/USD by 5.4%.
We’re above consensus on CLSA vs The Street

GDP and inflation. A higher GDP Inflation 3-month SIBOR SGD/USD
interest rate is justified by
improved macro outlook and Government (2022) 3-5 (2022) 1.5 – 2.5 n.a n.a.
accelerated Fed moves Consensus (2022) 4.0 (2022) 1.4 (end-22) 0.58 (end-22) 1.32
CLSA (2022) 4.7 (2022) 2.0 (end-22) 1.00 (end-22) 1.37
50 viola.wang@clsa.com 10 December 2021

Singapore EoAE Forecasts - 1Q22
Singapore by numbers
2016 2017 2018 2019 2020 2021E 2022F 2023F
Public consumption 3.8 3.1 3.2 3.4 12.6 4.1 0.1 (1.6)
GFCF 0.5 5.4 (4.3) 1.2 (13.7) 13.3 7.6 3.9
Exports, goods & services (0.1) 7.1 7.7 0.1 (4.3) 6.3 5.7 5.3
Imports, good & services 0.1 7.8 7.5 0.2 (7.1) 6.7 6.7 5.5
Real GDP growth 3.3 4.5 3.5 1.3 (5.4) 6.9 4.7 3.2
Prices
Consumer prices (average) (0.5) 0.6 0.4 0.6 (0.2) 2.2 2.0 1.1
Domestic supply prices (y/e) 9.1 0.7 0.4 (1.1) (6.8) 14.7 (3.3) (5.4)
SGD/USD (y/e) 1.45 1.34 1.36 1.35 1.32 1.37 1.37 1.30
SGD/USD (average) 1.38 1.38 1.35 1.36 1.38 1.35 1.38 1.33
3-month SIBOR (% y/e) 0.97 1.50 1.89 1.77 0.41 0.44 1.00 1.35
External sector
NODX (USD, % YoY) (3.3) 8.9 6.7 (10.2) 3.1 15.7 2.4 4.5
Retained imports (USD, % YoY) (5.9) 22.7 17.4 (8.4) (18.4) 22.9 6.1 3.7
FDI (USD bn) 29.9 36.0 61.1 69.8 55.0 72.6 75.3 82.1
CA + net FDI (% GDP) 26.9 27.8 31.7 32.9 33.7 39.3 39.3 38.9
External debt (total, USD bn) 0.0 0 0 0 0 0 0 0
Debt service ratio (% exports) 0.0 0 0 0 0 0 0 0
Money supply
Money supply M1 (y/e) 7.7 9.1 0.1 3.6 32.8 13.3 8.2 7.7
Money supply M2 (y/e) 8.0 3.2 3.9 5.0 13.2 6.9 6.1 5.6
Bank credit (y/e) 2.9 5.6 3.0 3.1 (2.0) 22.5 8.9 7.8
Bank credit (% GDP) 140.2 137.5 132.5 135.6 144.7 158.8 161.8 165.8
Government sector
Government balance¹ (% GDP) 1.4 2.3 0.7 0.2 (13.8) (2.1) (0.6) 0.5
Nominal GDP
Nominal GDP (SGD bn) 440.4 474.1 507.1 510.7 469.1 523.7 559.9 588.9
Nominal GDP (SGD, % YoY) 4.0 7.7 7.0 0.7 (8.2) 11.6 6.9 5.2
Other data
Industrial production 3.7 10.4 7.0 (1.5) 7.5 12.0 5.7 2.8
Retail sales 1.9 1.8 (0.8) (2.8) (15.3) 10.1 5.9 3.8
Unemployment (% y/e) 2.2 2.1 2.2 2.3 3.3 2.6 2.3 2.2
Note: % YoY rates unless otherwise stated. ¹ Fiscal years beginning 1 April. Source: CEIC, MAS, MTI, Bloomberg, CLSA estimates
Currency forecast
2019 2020 2021F 2022F 2023F 1Q22F 2Q22F 3Q22F 4Q22F
SGD/USD 1.35 1.32 1.37 1.37 1.30 1.37 1.40 1.39 1.37
SGD/JPY 100 1.24 1.28 1.22 1.19 1.16 1.19 1.20 1.20 1.19
SGD/GBP 1.79 1.79 1.82 1.82 1.78 1.79 1.79 1.81 1.82
SGD/EUR 1.51 1.62 1.53 1.51 1.50 1.51 1.50 1.52 1.51
10 December 2021 viola.wang@clsa.com 51

Taiwan EoAE Forecasts - 1Q22
Slower exports, stronger consumption

 2021 was strong but the key growth drivers – exports and investment - were less good in 2H21 than 1H21 and will
slow in 2022. Consumer spending lags and will not be able to compensate even with a vaccination windfall in 2H22.
 2021 growth is estimated at 5.6%; 2022 will be slower but still robust. We forecast 3.8%, this is fractionally lower than
we thought 3 months ago and slightly below consensus but would still be an excellent outcome. 2023 will be slower.
 Inflation has spiked but should start to ease in 2022; CBC will tighten in 1Q22 and 2Q22 but it only takes two 12.5bp
hikes to take rates back to pre-Covid levels. TWD softer in 1H22 but should recoup these losses in 2H22 and 2023.
Growth
2021 growth estimate 5.6% With three quarters GDP numbers available we cut our 2021 growth estimate to
5.6%; the 3Q rebound (from the pandemic-affected 2Q) was soft. As often in Taiwan,
But 1H21 was stronger than
2H21 for key growth drivers
consumer spending lagged strong growth in exports and investment. However, even
and we see the slowdown for these growth drivers, 2H was weaker than 1H. This trend will continue in 2022.
continuing in 2022 Taiwan has been a prime beneficiary from the jump in durables goods demand
following the pandemic first wave and will suffer as spending patterns normalise.
2022 forecast 3.8% still good
There have been supply constraints, which should prolong production and export
but with the same 1H to 2H growth even as demand slows. And investment is likely to start 2022 strong.
slowdown However, as world trade growth slows so will Taiwan, we expect GDP growth of 3.8%
for 2022 (0.1ppts lower than we forecast 3 months ago).
Vaccination critical mass will Despite rapid progress, vaccination still lags. This makes Taiwan more vulnerable to
allow stronger PCE in 2022 new Covid variants even though its containment policies have been highly effective.
By mid-2022, this vulnerability should have eased as Taiwan, by this point, will have
But not enough to compensate achieved vaccination “critical mass”. This appears in our forecast as better PCE
for flatter export and growth. However, the boost will be modest and (with 1H22 still hesitant)
investment growth consumption will not lead growth in 2022. The benefits of vaccination also appear in
2023 forecast 3.0%; this is just
the 2023 forecast, which represents an extrapolation of the trends we expect in
above trend 2H2022: stronger consumer spending but slower export and investment growth.
Inflation
Inflation spiked late 2021 Inflation peaked around 2¾% YoY in 4Q21, the highest for nearly a decade. However
this spike should prove short-lived (on our model it starts to fall before end-2021).
Will ease in 2022 as food and
fuel price effects abate
In 2022 we see inflation lower. Core inflation is unlikely to rise much above current
levels (~1.5% YoY) and food and energy effects should ease as 2022 progresses
~1.5% core inflation implies before making a negative contribution in 4Q22. Our end 2022 inflation forecast is
headline dipping to 1% by 4Q a low 0.9% YoY. Taiwan is a low inflation economy, this rate continues in 2023.

2x12.5bp increases in 1H22 The soft 3Q rebound means that we move the 12.5bp rise in the rediscount rate,
which we had pencilled in for 4Q21, into 1Q22. We see a second rate increase in
This will take rates back to pre-
Covid levels; we don’t expect
2Q22. This will take the rediscount rate back to its pre-Covid levels and, with growth
more than this drivers softening, we do not expect further tightening in the second half.
TWD softer in 1H22 on The TWD was relatively stable in 2H21 however, we expect TWD to underperform
unilateral USD strength the USD as global liquidity tightens into the US rate increases. Our mid-2022 forecast
But TWD to regain these losses
is TWD28.80/USD. The “sell on the fact” correction we expect for the USD when the
in 2H22 and 2023 Fed starts to deliver rate hikes will allow the TWD to recoup these losses. By mid-
2023 it will be around TWD27.60/USD, comparable with the top of the 2021 range.
The consensus is too low on
growth in 2022, however we CLSA vs The Street
feel the authorities’ forecast is GDP Inflation Policy rate TWD/USD
a little ambitious. Taiwan is a Gov’t (DGBAS) (2022) 4.2 (2022) 1.6 n.a n.a.
low inflation economy and we
Consensus (2022) 3.3 (2022) 1.4 (end-22) 1.25 (end-22) 27.60
all expect inflation to drop
away in 2022 CLSA (2022) 3.8 (2022) 1.4 (end-22) 1.38 (end-22) 28.50

Taiwan EoAE Forecasts - 1Q22
Taiwan by numbers
2016 2017 2018 2019 2020 2021E 2022F 2023F
Private consumption 2.6 2.7 2.1 2.3 (2.4) (2.3) 2.8 3.1
Public consumption 3.7 (0.4) 4.0 0.5 2.8 2.7 1.3 0.4
GFCF 3.4 (0.3) 3.2 11.1 4.7 17.3 11.7 3.0
Domestic demand (contr. to growth) 2.5 1.0 3.0 2.8 0.5 3.7 4.0 2.2
Exports, goods & services (0.9) 4.5 0.2 0.7 1.0 17.5 5.5 5.3
Imports, goods & services (1.0) 1.6 0.8 0.5 (4.2) 18.4 7.6 5.7
Real GDP growth 2.2 3.3 2.8 3.1 3.4 5.6 3.8 3.0
Prices
Consumer prices (y/e) 1.7 1.2 (0.1) 1.1 0.0 2.3 0.9 0.9
Wholesale prices (y/e) 1.8 0.3 0.8 (3.5) (4.8) 10.5 1.0 (1.5)
TWD/USD (y/e) 32.00 29.95 30.59 29.99 28.12 27.80 28.50 27.60
TWD/USD (average) 32.24 30.41 29.84 30.91 29.66 27.66 28.55 27.60
Discount rate (% y/e) 1.375 1.375 1.375 1.375 1.125 1.125 1.375 1.375
Overnight rate (% y/e) 0.17 0.18 0.18 0.18 0.09 0.08 0.18 0.33
External sector
Exports (USD, % YoY) (9.0) 10.8 0.8 (4.3) 3.5 29.8 13.8 8.1
Imports (USD, % YoY) (10.6) 9.7 6.5 (1.9) (2.1) 33.2 14.5 8.8
FDI (USD bn) (8.3) (8.2) (10.9) (3.5) (5.4) (5.7) (7.3) (7.0)
CA + net FDI (% GDP) 11.6 12.7 9.7 10.1 13.4 13.8 13.8 13.2
Money supply
Money supply M1b (y/e) 6.0 4.0 5.7 7.4 16.2 12.9 10.8 4.6
Money supply M2 (y/e) 4.1 3.6 3.1 4.1 8.4 8.2 8.2 6.1
Private sector credit (% of GDP) 125.5 128.7 133.0 136.1 139.3 138.7 147.0 146.5
Government sector
Nominal GDP
Nominal GDP (TWD bn) 17,555 17,983 18,375 18,909 19,799 21,488 22,465 23,506
Nominal GDP (TWD, % YoY) 2.9 2.4 2.2 2.9 4.7 8.5 4.5 4.6
Other data
Industrial production 3.6 5.7 1.6 (1.2) 10.3 14.8 9.4 6.2
Retail sales (1.0) 0.3 1.1 2.0 1.0 (1.0) 12.7 5.2
Unemployment (% y/e) 3.8 3.7 3.7 3.7 3.7 3.6 3.4 3.2
Note: % YoY rates unless otherwise stated. Source: CEIC, CLSA estimates, IMF, Central Bank of China, DGBAS
Currency forecast
2019 2020 2021F 2022F 2023F 1Q22F 2Q22F 3Q22F 4Q22F
TWD/USD 29.99 28.12 27.80 28.50 27.60 28.20 28.80 28.60 28.50
TWD/JPY 100 27.61 27.18 24.64 24.78 24.64 24.52 24.62 24.66 24.78
TWD/GBP 39.76 38.14 36.71 37.91 37.81 36.94 36.86 37.18 37.91
TWD/EUR 33.63 34.43 30.91 31.35 31.74 31.02 30.82 31.17 31.35

Thailand EoAE Forecasts - 1Q22
Reopening but headwinds persist

 Thailand has re-opened to international tourists and accelerated its vaccination programme, paving the way for a
rebound to 4.1% real GDP growth in 2022, from our 1.1% growth estimate in 2021.
 Amid declining competitiveness and structural constraints (declining labour force, skills shortages), GDP growth will
moderate to our 3.4% forecast in 2023. Low confidence in the Prayut administration underlines political risk.
 The current account swing to deficit in 2021 left the exchange rate exposed while fiscal vulnerability was highlighted
by the raised public debt ceiling to 70% of GDP. THB rebound in 2H22 will lag.
Growth
Economic reopening and a Thailand has re-opened to international tourists and advanced to a 60% fully
return of tourists but vaccinated population (5 December), paving the way for a GDP rebound in 2022.
headwinds will persist
The strength of the rebound will be curbed by persistent headwinds though, in
particular slowing global demand by mid-year and the deterrent to would-be
Chinese tourists imposed by China’s zero-Covid policy. Stronger than expected
3Q21 growth lifted our 2021 GDP estimate to 1.1% (from 0.7% previously) but
obscured private consumption and investment (sa QoQ) contractions. A domestic
demand rebound with economic re-opening will drive economic recovery in 1H22.
By mid-year though, the export driver will be flagging. We forecast 4.1% GDP
growth in 2022, which is flattered by the low base year effect.
Thailand is struggling to arrest Household debt was close to 90% of GDP in mid-2021. Rural income was on a
a decline in competitiveness downward trend going into 4Q21. Infrastructure spending has been displaced by
fiscal support for Covid, but even before this, fiscal disbursement was inefficient.
Thailand has been an underperformer among Asia’s manufacturers in terms of both
export performance and attracting FDI inflows. Thailand is on the verge of applying
for membership of the CPTPP trade agreement (official statement) but has not yet
done so. Facing structural constraints (declining labour force, skills shortages), GDP
growth will moderate to our 3.4% forecast in 2023. This was the average annual
growth rate in the five years since the military coup in 2014.
Inflation
The absence of demand price Rising fuel prices, flood-related food price rises and sin tax rises lifted inflation to
pressure is evident from the 2.7% YoY in November. But the absence of demand price pressure was evident from
very low core inflation rate
the 0.3% YoY core rate. Domestic demand rebound will lift average inflation in 2022.

Atypical current account deficit Tightening global liquidity and rising emerging market risk premium, rather than
in 2021 pressured the THB inflation concerns, will lead BoT to tighten policy. We forecast a 50bp policy rate
exchange rate
rise to 1% in 2H22. The exchange rate was left exposed by the current account
swing to deficit in 2021. The current account, while returning to surplus in 2022,
will be kept below 1% of GDP by delayed tourism recovery. A special visa scheme
allowing foreigners to obtain work permits, conditional on investing USD1mn, is
aimed at boosting capital inflow on the financial account.
The public debt ceiling has Thailand’s increasing fiscal exposure has been highlighted by the government’s
been raised from 60% to 70% decision to raise the public debt ceiling from 60% of GDP to 70% of GDP. Since
of GDP
fiscal support can be withdrawn only slowly so as not to impede economic recovery,
we expect public debt to approach the 70% of GDP cap by 2023.
Our GDP forecast is in line with
BoT and consensus but our
inflation forecast is much CLSA vs The Street
higher. Unlike us, consensus is GDP Inflation Policy rate THB/USD
not expecting a rate rise in
Government (2022) 3.5-4.5 (2022) 1.4 n.a n.a.
2022 but, even against rising
US rates, forecasts a stronger Consensus (2022) 3.9 (2022) 1.5 (end-22) 0.55 (end-22) 32.20
THB/USD exchange rate CLSA (2022) 4.1 (2022) 2.8 (end-22) 1.00 (end-22) 34.80

Thailand EoAE Forecasts - 1Q22
Thailand by numbers
2016 2017 2018 2019 2020 2021E 2022F 2023F
Public consumption 2.2 0.3 2.6 1.7 0.9 2.4 0.5 (0.2)
GFCF 2.9 1.8 3.8 2.0 (4.8) 3.8 8.0 6.9
Imports, goods & services (1.0) 6.2 8.3 (5.2) (13.3) 19.2 10.5 6.0
Real GDP growth 3.4 4.2 4.2 2.3 (6.1) 1.1 4.1 3.4
Prices
Producer prices (y/e) 1.3 (0.8) 0.0 (0.1) (0.5) 6.4 2.5 1.7
THB/USD (y/e) 35.81 32.67 32.71 30.22 30.10 34.00 34.80 32.50
THB/USD (average) 35.28 33.92 32.30 31.04 31.29 32.02 34.90 33.46
1-day repo rate (% y/e) 1.50 1.50 1.75 1.25 0.50 0.50 1.00 1.25
Minimum lending rate (% y/e) 6.43 6.32 6.32 6.18 5.42 5.42 6.00 6.25
External sector
Exports (USD, % YoY) 0.1 9.5 7.5 (3.3) (6.5) 16.8 7.3 4.2
Imports (USD, % YoY) (5.1) 13.2 13.7 (5.6) (13.8) 24.1 13.4 8.5
Current account balance (USD bn) 43.4 44.0 28.4 38.0 21.2 (12.6) 4.7 14.2
- as a % of nominal GDP 10.5 9.6 5.6 7.0 4.2 (2.5) 0.9 2.6
FDI (USD bn) (9.9) (5.9) (4.2) (5.6) (23.8) (3.5) 2.0 2.4
CA + net FDI (% GDP) 8.1 8.3 4.8 6.0 (0.5) (3.2) 1.3 3.0
Debt service ratio (% exports) 6.0 5.8 6.0 6.3 6.3 7.3 7.6 7.4
Money supply
Money supply - Narrow (y/e) 4.8 9.4 2.8 5.7 14.2 13.8 12.6 8.9
Money supply - Broad (y/e) 4.2 5.0 4.7 3.6 10.1 5.8 11.0 8.0
Government sector
Public sector balance (% GDP)¹ (0.9) (2.4) (2.5) (2.6) (5.0) (9.0) (7.2) (5.2)
Public sector debt (% GDP, y/e) 41.8 41.8 42.0 41.0 49.6 61.3 66.7 69.2
Nominal GDP
Nominal GDP (THB bn) 14,590 15,489 16,369 16,898 15,698 16,150 17,228 18,235
Nominal GDP (THB, % YoY) 6.2 6.2 5.7 3.2 (7.1) 2.9 6.7 5.8
Other data
Note: % YoY rates unless otherwise stated; ¹ Fiscal year ending September. Source: IMF, IFS, CEIC, CLSA estimates, Bank of Thailand
Currency forecast
2019 2020 2021F 2022F 2023F 1Q22F 2Q22F 3Q22F 4Q22F
THB/USD 30.22 30.10 34.00 34.80 32.50 34.50 35.50 35.20 34.80
THB/JPY 100 27.83 29.09 30.36 30.26 29.02 30.00 30.34 30.34 30.26
THB/GBP 40.07 40.82 45.22 46.28 44.53 45.20 45.44 45.76 46.28
THB/EUR 33.89 36.85 38.08 38.28 37.38 37.95 37.99 38.37 38.28

Important disclosures Eye on Asian Economies 1Q22
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Eye on Asian Economies 1Q22
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Choose Your Poison: Growth or Inflation: December 2021

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Choose Your Poison: Growth or Inflation: December 2021

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EYE ON ASIAN ECONOMIES

Choose your poison:

will become an increasing concern for global markets in 2022.

economies driven by domestic demand rather than exports.

2022 is the transition from rapid early-cycle growth, in which inflation is

Real GDP growth

Eric Fishwick Contents

Your eyes on the Asian economies

2 eric.fishwick@clsa.com 10 December 2021

Even with a reopening CLSA real GDP growth forecasts

Australia 2.0 (2.2) 3.9 4.1 2.7

10 December 2021 eric.fishwick@clsa.com 3

Choose your poison: Growth or inflation

Supply chain stress is extreme

4 eric.fishwick@clsa.com 10 December 2021

100 (DI) Thailand

10 December 2021 eric.fishwick@clsa.com 5

The inflation reaction is (so far) surprisingly modest

DM inflation is testing new EM vs DM inflation (%YoY)

Source: CLSA, OECD

Monetary inflation remains a non-issue

6 eric.fishwick@clsa.com 10 December 2021

10 December 2021 eric.fishwick@clsa.com 7

From the 2020 trough the CRB index

Source: CLSA, Bloomberg

And slower world trade growth implies pressure will ease

8 eric.fishwick@clsa.com 10 December 2021

Which has been tighter in CRB index vs world trade growth

Source: CLSA, Bloomberg, cpb.nl

Commodity price forecasts

10 December 2021 eric.fishwick@clsa.com 9

Baltic dry freight index Container rates

6,000 (04/01/85 16,000 (USD)

Source: CLSA, Bloomberg Source: CLSA, Bloomberg

Second round effects cannot be discounted

10 eric.fishwick@clsa.com 10 December 2021

Global growth will slow in 2022

This cycle has been driven by the G2

The manufacturing recovery Markit manufacturing PMIs

Source: CLSA, Markit Economics Ltd

10 December 2021 eric.fishwick@clsa.com 11

And the G2 are now past their growth peak

Markit composite PMIs: US and EZ Markit composite PMIs: CN

12 eric.fishwick@clsa.com 10 December 2021

Don’t neglect fiscal drag

The IMF estimates the EZ Fiscal boost/(drag) % GDP

10 December 2021 eric.fishwick@clsa.com 13

Plus spending is rebalancing from goods to services

Source: CLSA, CEIC Source: CLSA, CEIC

14 eric.fishwick@clsa.com 10 December 2021

10 December 2021 eric.fishwick@clsa.com 15

Covid to drop away as the dominant economic driver

16 eric.fishwick@clsa.com 10 December 2021

Low income Asian Asian vaccination status

But China is the exception

10 December 2021 eric.fishwick@clsa.com 17

(Cases per 60 (Cases per

Source: CLSA, CEIC Source: CLSA, CEIC

US tightening to dominate the liquidity environment

18 eric.fishwick@clsa.com 10 December 2021

The Powell pivot

The precedent is that risk aversion will rise