2022 Outlook: Asia emerges from COVID-19 cautiously

We continue our short conversations with some of our regular contributors about their outlook for 2022.

Here, we speak with Robert Subbaraman, managing director and head of Global Macro Research at Nomura, about how Asian economies will fare in 2022, some of the key challenges the region must address to bounce back from the pandemic, and the defining economic themes for Asia in 2022.

Unravel: What is your outlook for developed Asian economies in 2022?

Robert Subbaraman: As in recent years, 2022 will be a challenging year for Asia’s economies given the Omicron variant, China’s weak economy and the Fed gearing up to hike rates. High oil prices are also a constraint on the region as most Asian countries are net importers of energy. That said, the region’s economic fundamentals are in relatively good shape—with large forex reserves, current account surpluses (or only small deficits), moderate inflation and lower interest rates—compared to the Latin America (LatAm) and Eastern Europe, Middle East, and Africa (EEMEA) regions. In 2022, we expect real GDP growth of 3.5% in Japan and 5% in Asia ex-Japan, compared to 3.4% in EEMEA and 2% in LatAm. Relative performance is key when it comes to financial flows. In the emerging markets universe, Asia is well positioned to attract capital inflows.

Unravel: What are some of the pressing challenges developing economies in the region must address?

Mr Subbaraman: The number one challenge is overcoming the pandemic. This means getting vaccination rates up quickly, and employing fiscal policies to address the growing income inequalities caused by the pandemic. Another challenge is to limit negative financial spillovers from the US rate hiking cycle, which essentially requires policymakers to keep their economic houses in order by guarding against balance of payments and financial stability risks, as well as too high inflation.

Unravel: Are you optimistic about a bounce-back in economic growth across developing Asia?

Mr Subbaraman: In the first half of 2022, Asian economies should bounce back on global inventory restocking after the supply shortages; and a resurgence in consumer demand for services after the Omicron wave eases. But the second half of the year could be more challenging as monetary and fiscal policies tighten around the world, and pent-up COVID demand and inventory restocking fade. We expect growing divergences in economic performances in Asia, with some of the leaders being Singapore, Malaysia and Taiwan.

Unravel: What, in your view, will be two or three defining economic themes that will play out across Asia next year?

Mr Subbaraman: Some of the key themes will be the new normal of living with COVID-19, a rising interest rate environment, and addressing growing income and wealth inequality.