The Delta variant outbreak has been more severe and long-lasting than expected, prompting a significant downward revision to our 2021 Asia growth outlook to 7.1%. What is more striking from our forecast revision is the further divergence in growth performance, with more advanced economies in Asia remaining broadly on their recovery path, while others have faltered, significantly. In particular, ASEAN ex Singapore, is likely to see its GDP growth limited to 2.7% in 2021, taking until Q3 2022 to overtake that in more advanced economies in Asia.

Despite the severity of Covid-19 outbreaks and weakness in domestic demand in Asia, inflationary pressure, on balance, has remained persistent, due to supply side constraints – on the back of bad weather and supply chain disruptions – and continued subsidies. Reversal of these factors is likely to keep inflation elevated through 2022, further pressed by weaker FX.

On the macro policy front, the divergence theme continued with monetary policy shifts, as the BoK leads the region in monetary policy normalization, while China is reversing its macro policy tightening. For others, fiscal support remains as their preferred tool, with a significant adjustment to their financial health projections for some.

In this edition of AMI, we also take a close look at each of the economies we cover in Asia.