In January, our members attended The World Ahead 2022, a sharing session by Dr. Simon Baptist, global chief economist at the Economist Intelligence Unit, held in collaboration with SMU Libraries. Read on to find out some of our student analysts' take on what was shared by Dr. Baptist regarding the risks and opportunities that lie in 2022:
Title: On the Road to El Dorado: Economic Recovery in Asia
Author: Luqman Hakim
Dr. Simon Baptist, global chief economist at the Economist Intelligence Unit (EIU) and Managing Director for EIU in the Asian region, delivered a lecture recently at the behest of the SMU library. Both a retrospective and a forecast, it was an incisive survey of contemporary Asian affairs and burgeoning trends in the region.
Dr. Baptist is cautiously optimistic about the future of Asian economies, predicting a growth rate of 4.7% across the board as they rebound from the pandemic. Advances in medical science and technology have resulted in the development of more effective vaccines and standardization of health toolkits. Industries and citizenry tempered by the trials of Covid-19 also stand ready to adapt to the virus as it continues to evolve. An expanding Asian middle class will spur consumption and fuel GDP growth, while economies specializing in technology and healthcare retain robust international demand and are likely to prosper despite the circumstances.
He is careful to emphasize the unevenness of this economic recovery. The Asian nations generally lack access to the more effective vaccines Pfizer and Moderna, rendering them dependent upon continued booster shot regimes and delaying the achievement of herd immunity. On the one hand, this vaccine inequality will disproportionately impact economies traditionally reliant on their service or tourism sectors. On the other, this will provide opportunities for foreign actors to influence domestic affairs through vaccine diplomacy. In addition, it is probable that school lockdowns and the loss of service jobs have reduced worker productivity, and this effect will only be apparent in the long-run recovery.
However, Asia is at the mercy of circumstances much larger than itself. Firstly, worsening US-China ties are forcing Asian nations into US- or China-allied blocs, presenting barriers to trade and disrupting supply chains. Secondly, contractionary monetary policies are currently being pursued across the world to control inflation, running the risk of a stock market crash. These tight financial conditions could also derail recovery in emerging markets. Thirdly, the precarious state of the Chinese property market would lead to a regional economic slowdown if it crashes. Lastly, there is the always the risk of new Covid-19 variants such as Omicron; should they prove severe enough, could very well send the global economy back into a recession.
Finally, the economic needs of Asia are at odds with the dictates of combating climate change. For the moment, Asia is heavily reliant upon coal-due to a multitude of reasons. For one, the developing nations of Asia want more time to expand their economies before the inevitable curbs kick in. In addition, the enormous funds required to fight climate change and transition to green energy are not forthcoming, with the Global North unlikely to agree to the US$1.3 trillion requested by the developing nations. Lastly, there is the geopolitical factor: In the absence of proven climate technology, coal remains the one resource that sufficiently satisfies energy security concerns as geopolitical tensions continue to worsen. As such, Asia will remain a major source of global emissions even as the world grapples with the realities of an overheating planet.
In short, an unenviable task lies ahead for the current generation of Asian leaders. They must guide their ships of state between the Scylla of international faction and the Charybdis of climate change, even as they manage both the consequences of Covid-19 and the demands of their respective societies. It is a time of immense risk, and steady hands are required at the helm.
Author: Adam Ahmad Samdin
As the globe continues its path of recovery, Dr Simon Baptist, the Global Chief Economist at the EIU, shared some observations about The World Ahead in 2022. With the increased frequency of disruptions, it is useful to take stock of where we are, and what lies ahead.
EIU: General Trends
The pace of growth will start to ease. The EIU predicts that growth in 2021 is likely to have a historically strong showing of +5.5% due to the contraction in 2020, but 2022 is forecasted to move by a smaller +4.0%. Growth in the major demand drivers such as the US and the EU will continue to slow. In Asia meanwhile, the pace of growth in China is likely to slow down as well especially in light of its zero-COVID policy, while India is primed for a strong 2022 expansion. Economies that were battered by further waves of COVID-19 like Indonesia and the Philippines are slower to recovery– but will mostly start to normalise by 2022. Global trends that are likely to grab 2022 headlines include elevated shipping costs, higher commodity prices, and the green transition. While the current spate of rising commodity prices might be reminiscent of the 2000 Supercycle, this time, short-term supply and pressures are driving the boom instead of China’s rapid economic expansion.
EIU: Key Questions
There are four key uncertainties looming for 2022. First, the possibility of yet another mutation will always be on the cards. The pandemic era is not yet over; if anything, it has just begun. Thankfully, the world is also more well-equipped to handle more variants from managing the last few rounds of COVID-19 and living in an endemic world. Second, geopolitical tensions are set to increase. While the US and China have both acknowledged a responsibility to avoid conflict, “strategic competition” as President Biden calls it will continue as both superpowers jostle for influence – particularly in the Asia Pacific. The increasing popularity of export tariffs or even outright bans, such as Indonesia’s planned bauxite ban for 2022, is also a note of interest. Third, the inflation risk remains prominent as the world grapples with the supply snarl. Rising transportation costs, wage pressures, and commodity shortages will keep prices elevated. Lastly, the acceleration towards a green transition is likely to pose some pain points – particularly to carbon-intensive economies.
Writer’s Insights: Southeast Asia
In focus, it seems like Southeast Asia is an area to keep tabs on. Beyond economic losses from vaccine inequity across APAC, most ASEAN economies are still trying to exit from the pandemic. Consumption and essential tourism sectors remain weak. Central banks will need to balance stimulating demand through low interest rates while accounting for the possibility of a repeat of the 2013 Taper Tantrums. While economies claim they are better positioned than before, the Fed’s rather hawkish position still poses some very hard questions for monetary policy. The green transition is also likely to face headwinds, given the broken USD100bn promise from developed economies for climate financing. This is exacerbated by how Asia in general is still rather reliant on coal for energy production. Geopolitics is also becoming more complex. As the US and China jockey for regional influence, some countries in the region are turning to ASEAN centrality as hedge, or even a priority, against superpower interests. But within the bloc, disagreements on how to manage Myanmar is threatening regional unity. A key player to look out for in 2022 is Indonesia, the fourth most populous nation. While President Jokowi has been rather quiet on the foreign policy front, it seems he is starting to be more proactive. The G20 Presidency (followed by the ASEAN Chairmanship in 2023) is likely to awaken the sleeping giant, and aid efforts in representing the developing world.
Overall, the global economy will continue to exit from the pandemic recession. But this respite is faced with several headwinds in the year ahead.