1. Avoiding shortages and finding new suppliers
1.1 The uneven impact of shortages
1.2 Shock temporarily reshapes energy imports
2. Value chains: cascading direct and indirect effects
2.1 Agriculture: at the forefront of the shock
2.2 Will Santa come this year?
2.3 In services, air transport is struggling
3. Multiple transmission channels
3.1 Uneven growth momentum
3.2 Limited success for fiscal support policies
3.3 Difficult trade-offs for central banks
3.4 The case of China
Despite Donald Trump’s declarations and promises, the war with Iran rumbles on, tipping Asia’s economies into an era of uncertainty that is very difficult to manage.
Of course, the crisis is not affecting all the region’s economies to the same extent: for the time being, the most advanced among them are only experiencing a price shock, while the most fragile are also having to contend with volume issues, which are already triggering shortages or severe restrictions. The same goes for sectors: the extent to which they are affected depends on their energy intensity or how reliant they are on certain specific inputs.
It must be said that the war is striking directly at the heart of Asian growth models, which are built on smooth trading flows and price competitiveness. Available activity indicators for March and April already point to an uptick in producer and consumer price indices, despite measures put in place by national authorities to mitigate the impact of higher commodity prices. Industrial production is also slowing, particularly in China.
As the prospect of a rapid return to “normality” fades following damage to some production facilities, Asian countries face difficult trade-offs on all fronts. What fiscal support should they offer? What monetary policy is needed to support activity, limit currency depreciation, maintain reserves and curb inflation in the face of a supply shock? Which sectors and economic agents should be prioritised, with Asia is exposed on multiple fronts: the agricultural sector through fertilisers; carbon-intensive industries; services including tourism; and purchasing power through inflation or remittances sent home by those working in the Gulf States?
This review of the region’s economies – India, the Philippines, Thailand, Malaysia, Indonesia, Singapore, Vietnam, as well as Japan, China and South Korea – provides an up-to-date overview of measures adopted since the start of the crisis, how resilient each country is, and short- and long-term strategies for adapting to the new global environment.
CitationAs we said, the ongoing conflict adds to a long list of shocks affecting Asia since Covid-19 and exacerbates certain structural weaknesses (such as reliance on fossil fuels and their derivatives). Faced with a shock transmitted through multiple channels, including prices, value chains and the availability of certain inputs, Asian countries are forced to make sometimes difficult trade-offs, notably in the area of fiscal and monetary policy. How can we support the most vulnerable economic actors without putting too much pressure on public finances, how effective might such support be, and how long should it be maintained? In formulating their strategy, how should central banks balance monetary orthodoxy, support for their currencies and external balances, and the need to maintain economic activity? Faced with this crisis, Asian countries are once again confronting problems typically associated with emerging economies: balance of payments issues, depreciation weighing on foreign currency debt, and an inflationary spiral. While they are now better equipped to deal with these challenges, the longer the conflict persists, the greater the risk of such vulnerabilities crystallising in the most vulnerable or exposed countries.
