Moody’s: Asia-Pacific likely to avoid recession

For Malaysia, Moody's said the economy would start to slow in 2023 after an exceptional run in 2022.

PETALING JAYA: The Asia-Pacific economy should avoid a recession in 2023 as recoveries continue among domestic economies around the region, according to Moody’s Analytics.

It said the region’s economy in the aggregate would accelerate from 3.2% this year to 3.5% in 2023, although this is only because the largest economy in the region – China – will rebound in the second half of 2023 as it begins to work through the multiple challenges that it faces.

They include the lack of resolution of debt within the property development sector, China’s restrictive zero-Covid-19 policies in place through November of this year, the expected surge in Covid cases in the first half of 2023 due to the easing of most restrictions within an environment of little herd immunity, limited public health capacity, and the lack of mRNA vaccines approved for use in China.

Hong Kong’s economy also would improve in 2023 from the long recession it has faced over the past year due to Covid-19 restrictions and the lack of international mobility.

Nearly all of the rest of the region would decelerate in 2023 as it faced multiple global challenges, it said.

The region’s export economies face less demand from Europe and the United States as the developed markets face the possibility of a recession in 2023.

Moody’s said interest rates would remain high as central banks would likely follow the lead of the Federal Reserve, to staunch inflation and protect foreign exchange rates.

“Inflation will ease, but at a gradual pace through 2023. And weak demand from China also will stymie the region’s growth, as there will be less demand for intermediate goods from China’s manufacturing industries,” Moody’s noted in a statement.

Meanwhile, for Malaysia, it said the economy would start to slow in 2023 after an exceptional run in 2022.

According to Moody’s, the demand for the country’s manufactured goods has weakened, mainly due to the slowing Chinese economy.

Nonetheless, export trade with South-East Asian economies, as well as with the United States and the European Union, remains robust.

Malaysia would also benefit from the trade diversion from China, as firms reroute their supply chains to alternate locations.

“This trend will insulate Malaysia from the weakness of Chinese demand for Malaysian exports.

“Malaysia houses major semiconductor chip producers, and manufacturing growth here had previously been shored up by the global chip shortage.

“However, slowing demand for consumer electronics amid weakness in the global economy is starting to be felt and will drag on manufacturing next year.

“Inflation pressures will begin to moderate next year as supply-side pressures ease. However, demand-side pressures are starting to build from the post-pandemic reopening. Drivers of core inflation in the latest consumer price index print for October include restaurants, hotels and recreation services,” it said.

Moody’s said Bank Negara would likely continue to hike its policy rate into early this year. The central bank reiterated its hawkish stance in its November meeting, noting that it will “pre-emptively manage the risk of excessive demand on price pressures”.

The central bank has raised rates four times, by a cumulative 100 basis points, bringing the overnight policy rate to 2.75%, 25 basis points away from its pre-Covid-19 rate of 3%.