Economy in Brief

In this week’s letter, we take the opportunity to reflect on the year, with a focus on key developments in the Asia Pacific region. We note that regional disinflation has finally materialized, aided by a decline in energy prices and as cumulative effects of past monetary tightening take hold. Further, we take stock of monetary policy in the region, with one camp of central banks potentially having concluded their tightening cycles, while another camp keeps policy easy, due to less-than-ideal economic conditions at home. Next, we evaluate regional currency performance, and with a nod to effects from monetary policy. We give a nod to equities in the region as well, noting however the headwinds that continue to drag on returns. We also examine shifting trade dynamics between China and other Asian Pacific economies, acknowledging continued export woes in South Korea, and increased shipments by Australia and Vietnam. Lastly, we delve into the state of tourism in the region, acknowledging the enduring gap left by Chinese tourists who have not returned and the measures being taken by regional governments to encourage their comeback.

Inflation developments Headline inflation in the Asia Pacific region cooled rapidly in early 2023, partly due to a sharp drop in energy prices (chart 1), while tighter monetary conditions weighed on domestic demand in some economies. Notably, both China and Thailand recorded their first post-pandemic deflation readings in July and October, respectively. Thailand’s headline inflation was dragged lower additionally by recent measures enacted by the new government, aimed at lowering living costs via diesel tax cuts, reduced electricity bills, and similar measures. However, apart from China and Thailand, relatively high headline inflation rates persist in the Philippines, India, Australia, and Singapore, despite easing price pressures. In the third quarter, there was a resurgence in inflation due to a rebound in crude oil prices, although a subsequent price correction suggests that these inflationary pressures may soon subside.