Quarterly Global Outlook 3Q 2021 - What Diverges Will Eventually Converge - UOB
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Quarterly Global Outlook 3Q 2021 What Diverges Will Eventually Converge
Content
03 Executive Summary 43 China
What Diverges Will
Eventually Converge 44 Hong Kong
45 India
10 Central Bank Outlook
46 Indonesia
13 Key Events In 3Q
47 Japan
14 FX, Interest Rate & 48 Malaysia
Commodities Forecasts
49 Philippines
50 Singapore
15 Asia Focus
Recovery Delayed, Not Derailed 51 South Korea
23 FOMC Focus 52 Taiwan
Let’s Talk About 53 Thailand
Talking About Tapering
54 Vietnam
27 FX Strategy 55 Australia
USD Weakness Drawing To A Close 56 Eurozone
Due To Fed’s Hawkish Shift
57 New Zealand
34 Rates Strategy
58 United Kingdom
Not Buying The Drop In Yield
59 United States of America
39 Commodities Strategy
Stay Bullish On Commodities
As Current Rally Still Has Legs
60 FX Technicals
66 Commodities Technicals
Information as of 18 June 2021
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Email: GlobalEcoMktResearch@UOBgroup.com
URL: www.uob.com.sg/research
Bloomberg: UOBR
Quarterly Global Outlook 3Q 2021
2
UOB Global Economics & Markets Research
Executive What Diverges Will Eventually Converge
Summary
“There is always a divergence between our perception and what actually exists.”
George Soros
It’s been more than a year since COVID-19 first broke out. Depending on which part of the world
you are at, your perception of the global fight against COVID-19 can be vastly different. Some
US cities have already declared victory against COVID-19 and no longer makes it mandatory for
those who are fully vaccinated to wear masks. Whereas for many in Asia, wearing of masks is still
very much a daily part of life whenever we step out of our homes. As COVID-19 wears on, there
is an increasing divergence in growth and recovery prospects, increasing divergence in monetary
policies and increasing divergence between rising inflation and the nonchalant yield curve.
US And Europe Are Way Ahead Of Asia In Terms Of Vaccination Drive
Source: Macrobond, UOB Global Economics & Markets Research (* UOB Estimates)
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
The most obvious divergence is the stark contrast in vaccination rates between developed nations
vs the rest of the world. After a very shaky start, the US and Europe have now led by a wide margin
in terms of their efforts to get their populace vaccinated. As of 10 Jun 21, more than 42% of the
populations in the US and UK, and 23% of the European Union are fully vaccinated. In contrast,
Asia (excluding China and its OECD members) is falling far behind in vaccination efforts with only
2.5% of population fully vaccinated. While China does not publish official data on fully vaccinated
persons, its National Health Commission reported the number of administered vaccines is at about
845 million doses (as of 10 Jun) of which we estimated that China would have a vaccination rate
between 30% and 37%, much higher than the sub 5% vaccination rate for India and Indonesia.
Diverging Recovery Prospects For G20 Nations
Source: Macrobond, UOB Global Economics & Markets Research
8.00
OECD: Diverging recovery prospects for G20 nations
7.00 (Years to pre-pandemic GDP per capita)
6.00
5.00
4.00
3.00
2.00
1.00
0.00
Quarterly Global Outlook 3Q 2021
EXECUTIVE SUMMARY 3
UOB Global Economics & Markets Research
The key consequence of this divergence in vaccination rate is the resultant divergence in recovery
prospects. In its latest Economic Outlook report dated May 2021, the OECD noted that this is “No
Ordinary Recovery”. While the OECD did upgrade global GDP growth this year significantly to 5.8%
from its previous forecast of 4.2% made in Dec 2020, it also warned that the recovery remains
uneven and vulnerable to fresh setbacks, depending on the effectiveness of vaccination programs
as well as public health policies.
Specifically, the OECD noted that “South Korea and the United States are reaching pre-pandemic
per capita income levels after about 18 months. Much of Europe is expected to take nearly 3 years
to recover. In Mexico and South Africa, it could take between 3 and 5 years.” While it is easy to make
generalizations, the recovery path is wrought with much uncertainty given the unpredictable nature
of the pandemic, with the latest outbreak across Asia triggered by the highly transmissible delta
strain that originated from India.
Amidst the renewed Our macroeconomic team has also noticed this divergence in economic recovery prospects. Amidst
COVID-19 outbreak the renewed COVID-19 outbreak across Asia, the GDP growth expectations for this year for the
across Asia, the GDP various economies that were more impacted by the outbreak have all been downgraded in recent
growth expectations months. Specifically, India’s GDP growth was downgraded to 8.5% from 10.5%, Thailand’s GDP
for this year for the
various economies that was downgraded to 1.5% from 3.5%, Indonesia’s GDP growth downgraded to 3.8% from 4.0% and
were more impacted Philippines downgraded to 5.5% from 7.0%.
by the outbreak have
all been downgraded While this is clearly a setback for recovery for Asia, our view remains that this is a temporary hiccup
in recent months. in Asia’s growth recovery path. China’s stable growth revival, coupled with robust export rebounds
across the region will help the rest of Asia to play catch up once this latest round of outbreak is
brought under control. Growth across Asia should recover and converge once again towards the
end of the year.
Beyond the diverging Beyond the diverging growth prospects, there is also divergence between the monetary policies of
growth prospects, the US Federal Reserve (FED) vs the rest of the Developed Market (DM) central banks. On one
there is also hand, a number of DM central banks have started to embark on the path of tightening monetary
divergence between
the monetary policies policy. Specifically, the Central Bank of Iceland has hiked by 25 bps, the Norges Bank has guided
of the US Federal for a rate hike before end of this year, while both the Bank of Canada (BoC) and Reserve Bank of
Reserve (FED) vs the New Zealand (RBNZ) have guided for rate hikes in 2022.
rest of the Developed
Market (DM) central Whereas on the other hand, the FED has until most recently insisted that inflation is transitory. Now
banks.
that the dot plot in the latest June FOMC has brought forward the timeline for the start of the FED
rate hike into 2023, this divergence between monetary policies between the FED and other DM
central banks have started to converge. We now see a possible start to tapering at the end of this
year, followed by the start of FED rate hike in June 2023.
10 Year US Treasuries Yield Has Diverged From Rising CPI And PPI
Source: Macrobond, UOB Global Economics & Markets Research
12 3.50
10
3.00
8
6 2.50
4
2.00
2
1.50
0
-2 1.00
-4
0.50
-6
-8 0.00
Jan 17 May 17 Sep 17 Jan 18 May 18 Sep 18 Jan 19 May 19 Sep 19 Jan 20 May 20 Sep 20 Jan 21 May 21
US Headline CPI (%) US Headline PPI (%) 10Y US Treasuries Yield (%) - RHS
Quarterly Global Outlook 3Q 2021
4 EXECUTIVE SUMMARY
UOB Global Economics & Markets Research
Moving on to the topic of “Inflation is transitory”, there is also a clear divergence between rising
headline CPI and PPI figures across key economies vs the recent pullback in long term bond
yields. Specifically, against our expectation of further climb in the 10 year US Treasuries yield,
the benchmark yield has instead pulled back from its peak of 1.75% in early April and retreated
to current level of around 1.5%. This retreat in long term bond yield is in stark contrast and has
diverged noticeably from the sharp rise in various inflation indicators for the US, with headline CPI
jumping to 5% and headline PPI spiking to 9.5%, both for the month of May.
While the recent spike Is inflation indeed transitory? Or have investors got it wrong about US Treasuries? While the recent
in inflation across 2Q spike in inflation across 2Q can be explained away in part due to the very low base effect from last
can be explained away year as well as various commodities supply and materials supply chain disruption, it remains to be
in part due to the very
seen whether inflation will indeed pull back across 2H.
low base effect from
last year as well as
various commodities As for the pullback in long term Treasuries yield, there is evidence to suggest that it is in a large part
supply and materials due to flow related dynamics. In short, US money market is flushed with cash. The repo market
supply chain cash glut whereby the FED’s daily overnight reverse repo operations now exceeded a record USD
disruption, it remains
500 bn, has extended to infect the longer end of the Treasuries market as well. Despite uncertain
to be seen whether
inflation will indeed pull inflation risks, the 10 year US Treasuries does look very attractive at around 1.50%, compared to
back across 2H. overnight repo that generates no yield at all. On this divergence, our view remains that longer term
yield will eventually resume their climb back up once the flow related dynamics dissipate.
In the commodities space, gold tried to play catch up in 2Q, to narrow the divergence between the
on-going strong rally in Brent crude oil above USD 70 / bbl and LME Copper to USD 10,000 / MT.
Will this divergence between gold and the broader commodities complex narrow in the coming
quarter to result in a more synchronized commodities rally?
In the FX space, there is also clear divergence amongst Asian currencies. Specifically, the prospects
for the IDR, INR and THB are likely to diverge further from the rest of the Asia FX complex which
trade more in sync with the CNY.
What will the 3rd quarter of 2021 bring? Will there be further uncertainty and divergence in terms
of economic prospects and monetary policies? Or will expectations normalize and converge once
more nations are fully vaccinated against COVID-19 and resume a more confident and sustained
recovery path? We hereby present our updated suite of quarterly macroeconomic, monetary policy,
FX, Rates and Commodities forecasts.
FX Strategy The latest hawkish shift by the Fed means that the current bout of USD weakness since mid- 2020
USD Weakness may be drawing to a close. We now expect the USD to consolidate and bottom against most Major
Drawing To A Close and Asian FX in 2H21 before beginning a gradual recovery in 1H22. In the Major FX space, various
Due To Fed’s Developed Market (DM) central banks have already started monetary policy normalisation either by
Hawkish Shift reducing its pace of asset purchases or hinting for a rate hike before end-2022. Rate hikes, a key
determinant of currency strength, would take place faster for this set of DM central banks compared
to the Fed where rate hikes would likely begin in mid-2023. As such, the USD repricing effect is likely
to be more gradual in the Major FX space. Overall, we expect DXY to bottom around 91 over the
next two quarters, followed by a modest recovery towards 93 by mid-2022.
In Asia, we made a series of growth downgrades across some Asian economies in the 2Q21 due to
a fresh wave of COVID-19 infections that hindered their respective economic recovery. In particular,
we continue to be defensive on the THB, IDR and INR. Tapering, even with the Fed keenness
to avoid a repeat of 2013 Taper Tantrum, would still put pressure on some Asian FX, especially
the above mentioned trio. For the remainder of Asian FX, a strong growth outlook this year and a
relatively firm CNY will lean against the emerging USD strength. As such, we expect a phase of
consolidation for most of USD/Asia in 2H21 before a modest uplift in 1H22. In particular, our updated
2Q22 forecasts for USD/CNY and USD/SGD are 6.48 and 1.36 respectively.
Quarterly Global Outlook 3Q 2021
EXECUTIVE SUMMARY 5
UOB Global Economics & Markets Research
Rates Strategy Investors’ focus on inflation has remained very much unabated during 2Q 2021, and this consensus
Not Buying narrative for higher price pressures was validated by the 13-year high print of 5% y/y for the May
The Drop in Yield Consumer Price Index (CPI) this month. Breaking down the 10Y UST price action, we can see that
the prevailing 10Y UST breakeven inflation has remained little changed when compared to its end
1Q 2021 levels. In the absence of major shifts in inflation expectations, the 10Y UST yield change
since the end of March has been driven by falling real yields. This suppression of real yields has
mostly been a short-term demand and supply phenomenon instead of resulting from any material
downgrades to economic growth expectation. The Fed’s latest decision to bring forward the Dot plot
into 2023 for rates liftoff also validated our inflation expectations.
Overall, In terms of our forecast for longer term US and SG yields, we retain the upward yield
adjustment trajectory and see 2.00% as reasonable year end targets for both 10Y UST and SGS. As
for shorter term US and SG yields, we retain the flat yield adjustment trajectory and see 0.18% as a
reasonable yearend target for 3M US LIBOR, while 3M SOR and 3M SIBOR should settle at around
0.25% and 0.40% by end 2021 respectively. Having said that, in line with our macroeconomic team’s
updated timeline for the first FED rate hike, we have also brought forward our anticipated liftoff for
money market rates to Jun 2023 as well.
Commodities It was an eventful second quarter for the commodities complex in which LME Copper and Brent
Strategy crude oil staged strong price rallies. The confluence of strong global growth recovery following the
Stay Bullish On post-COVID economic reopening coupled with the still very relaxed and expansionary monetary
Commodities As policies across the world helped to fuel the synchronized rally in commodities across the board.
Current Rally Still LME Copper has now rallied to the historic level of USD 10,000 / MT. Over the near term, some
Has Legs consolidation is in order given expectation of rebound in copper mine production. However, over the
longer run, demand for refined copper stays strong and the projected surplus may not materialize
given the stronger than expected demand from infrastructure and electronic vehicles. As such, after
some consolidation at USD 10,000 / MT in 3Q21, we expect a gradual climb higher to USD 11,000
/ MT by 2Q22.
As for Brent crude oil, the latest demand projections from OPEC were decidedly bullish. OPEC
expects global GDP to grow by a strong 5.5% this year. And coupled with strong vaccination drive
across the world, plus the snap back in transportation fuel demand, OPEC now forecast a jump in
global oil demand to “surpass” 99 mio bpd by 4Q this year, which OPEC notes will “put us back in
the range of pre-pandemic levels”. In terms of market parameters, Brent crude oil has reverted to
a comfortable backwardation over the past quarter, indicative of the resumption of global demand.
Overall, as long as OPEC maintains its discipline, and keeps to the current production agreement,
we can expect Brent crude oil to climb further. We now expect Brent crude oil to climb up to USD
80 / bbl by 2Q22.
On the other hand, gold’s upside above USD 1,900 / oz is now capped by the hawkish tilt from the
Fed. Most of the positive drivers for gold remain valid. These included strong rebound in China’s gold
jewelry demand, slowdown in outflows from gold ETFs and relative weakness in bitcoin resulting in
the pullback of the bitcoin vs gold ratio. Going forward, if inflation rises further, real yield may well
head further south. This is where gold can draw strength from its traditional demand as a hedge
against inflation. But Fed’s to bring forward its rate hiking cycle into 2023 has stopped gold’s 2Q
rally in its tracks. While we stay positive for gold, any potential upside strength is now limited and
curtailed. Overall, we lower our gold forecast and now see gold topping out at USD 1,900 oz in 1H22.
Hereafter is a brief synopsis of key Focus pieces as well as key FX and Rates views.
Quarterly Global Outlook 3Q 2021
6 EXECUTIVE SUMMARY
UOB Global Economics & Markets Research
Asia Focus Global GDP growth has been successively upgraded by international agencies, but wealthier
Recovery Delayed, developed economies lead in the current recovery cycle while developing economies visibly lag.
Not Derailed The clear differentiator of an economy’s recovery trajectory is the availability of COVID-19 vaccine.
Much of Asia’s recovery to date has been driven by manufacturing and the related rebound in
exports, but the divergence in rebound for in-person services sectors is delayed by a slow vaccine
rollout, thus holding back a more comprehensive recovery for many Asian economies.
The downside pressures from the resurgence of the pandemic and the arrival of new COVID-19
variants in 1H21 consequently led to us downgrading growth projections of several Asian economies
(such as India, Indonesia, Philippines, Malaysia and Taiwan) across 2Q21. That said, we are not
expecting a return to recession in 2021 for now, just a softer recovery and we anticipate gradual
improvements in 2H21 as vaccines become more widely available, although the likelihood of Asia
attaining reasonably high vaccination rates (75% of the population) within the next 12 months is
very low.
FOMC Focus In the June FOMC, the Federal Reserve’s (FED) acknowledgement of the beginning of the “talk
Let’s Talk About about the talk” about Quantitative Easing (QE) tapering during FOMC Chair Powell’s post-meeting
Talking About press conference, as well as the updated economic and interest rate projections, could now set in
Tapering motion for taper discussion which will lead to the fleshing out of the tapering process of its asset
purchase program.
We project the first indicative hint could be released during the Jackson Hole Symposium (26 Aug)
and further articulated into a pledge of the taper timeline in the 21/22 September 2021 FOMC.
We now expect the first taper to be carried out in December 2021 and the tapering process will
last for nearly 1.5 years until May 2023. Thereafter, we project two 25bps rate hikes in 2023, first to
0.25%-0.50% in June and then to 0.50%-0.75% in December.
Global FX USD/JPY: With 10-year Treasury yield GBP/USD: Even with steady recovery from
edging higher towards 2% by end-2021 the lows last March, GBP is still attractive on
while 10-year Japanese Government Bond valuations. To recall, GBP/USD was trading
yield stay tethered at 0% due to BOJ’s yield above 1.45 and GBP/SGD above 1.90 before
curve control, a widening yield gap would the Brexit referendum on June 2016. However,
spur outwardly investment and exert upward we will moderate our trajectory for GBP/USD
pressure on the USD/JPY. Hence, we update given the emerging USD. Overall, we update
our USD/JPY forecasts to 112 in 3Q21, 113 in GBP/USD to be at 1.40 in 3Q21, 1.41 in 4Q21
4Q21 and 114 in both 1Q22 and 2Q22. and 1.42 in both 1Q22 and 2Q22.
EUR/USD: Going forth, EUR/USD may AUD/USD: In 2H21, global commodity prices
also draw further support from the bloc’s are likely to stay well bid as more economies
EUR750bn recovery fund which is on track reopening would spur further demand. Also,
to make its first disbursement this summer. we expect the RBA to taper its bond buying
However, the latest hawkish shift from the program to AUD75bn from AUD100 bn in July.
Fed is an important new catalyst that may These are factors likely to lift sentiment on the
have cemented the EUR/USD’s double-top AUD, which would be measured against the
at around 1.23. From here, we see a period repricing on the USD due to the Fed’s taper.
of consolidation for EUR/USD at around 1.19 Overall, we expect AUD/USD to consolidate
across 3Q21 and 4Q21, followed by a retreat at 0.75 in 2H21, followed by 0.74 in 1Q22 and
to 1.17 in 1Q22 and 1.16 in 2Q22. 0.73 in 2Q22.
NZD/USD: NZD/USD is still likely be
supported at 0.70 in 2H21 due to the global
reflation trade, strong commodity prices and
buoyant global risk appetite. Next year, as
repricing for the Fed rate lift-off gains traction,
we expect NZD/USD to edge lower to 0.69 in
1Q22 and 0.68 in 2Q22.
Quarterly Global Outlook 3Q 2021
EXECUTIVE SUMMARY 7
UOB Global Economics & Markets Research
Asian FX USD/CNY: While the robust Chinese USD/KRW: Now, with a strong domestic
economy continues to provide the basis of growth outlook and BOK flagging “orderly”
a firm CNY, against the prospect of further policy normalization, the KRW looks set
measures by policymakers, further gains of to catch up with its regional peers in 2H21
the CNY against the USD would be more in year-to-date gains against the USD.
modest with more two-way fluctuation going Externally, the KRW will also be underpinned
forth. This is in contrast to the straight-line by a brightening global trade outlook as more
8% appreciation in the CNY in 2H20. Overall, economies emerge from the pandemic. Next
we now see mild USD/CNY strength ahead, year, the KRW may face lesser headwinds
at 6.43 in 3Q21 and 4Q21, 6.45 in 1Q22 and from the Fed’s tapering as the BOK is expected
6.48 in 2Q22, with the latter CNY weakness to be one of the first Asian central banks to
spurred by a reversion of China’s growth to hike rates in 1Q22. Overall, our updated USD/
a more sustainable level (5.7% in 2022) and KRW forecasts are 1,110 in 3Q21 and 4Q21,
broadening USD recovery. 1,120 in 1Q22, and 1,140 in 2Q22.
USD/SGD: In the case of the SGD, given USD/MYR: Despite near-term downside
the fast grip of its virus situation and an risks to growth prospects, underlying support
accelerated vaccine rollout, sentiments on for the MYR includes healthy external
the currency quickly rebounded and SGD was positions (i.e. sustain current account surplus,
seen firming back towards 1.33 /USD after a ample foreign reserves, and continued FDI
brief drop to almost 1.34 /USD. The ensuing inflows) and higher oil prices. Increasing
relaxation of social measures meant that SGD global crude oil prices and progressive
can stay bid, consolidating at 1.33 /USD till COVID-19 immunization program to contain
end-2021 in-line with a strong CNY. Next the pandemic provides impetus for MYR
year, Fed tapering will have a modest effect recovery towards 4.14 /USD in 3Q21. After
on USD/SGD, lifting the pair to 1.35 in 1Q22 which, USD/MYR will track a broad recovery
and 1.36 in 2Q22. in the USD as the Fed’s normalizing plans
come into focus. Hence we expect the pair at
USD/HKD: Going forth, the Fed’s tapering 4.15 in 4Q21, 4.16 in 1Q22 and 4.17 in 2Q22.
plan is likely to be the biggest determinant of
USD/HKD. Drawing comparison to the 2013’s USD/IDR: Overall, we do not expect the
“Taper Tantrum”, upside volatility of USD/HKD current bout of IDR strength to persist and we
may be capped as long as the Libor-Hibor continue to expect a higher trajectory in USD/
spread stays near zero. Overall, we reiterate IDR. Reasons to be cautious on the IDR include
the view that the HKD will stay tethered to the a persistent and widening current account
stronger end of its Convertibility Undertaking deficit and the still-high virus infection rate in
at 7.75 /USD until the Fed begins its next rate the country also casts a cloud of uncertainty
hike cycle in mid-2023. over the expected economic recovery. More
importantly, the Fed’s tapering plans could
USD/TWD: It is clear by now that TWD is spur portfolio outflows and weigh on the IDR.
drawing support from strong external demand At the same time, volatility in the FX markets
for its tech exports, buoyant risk appetite could be limited by a combination of BI
underpinned by global reflation, and limited drawing down its FX reserves, intervention in
impact from virus to Taiwan’s 2021 GDP. the FX domestic-NDF or local bond markets.
So, until the growth hit is significantly larger Our updated USD/IDR forecasts at 14,700 in
than expected, we remain comfortable in our 3Q21, 14,800 in both 4Q21 and 1Q22, and
view for TWD staying strong at 27.7 against 14,900 in 2Q22.
the USD in 2H21. Next year, as the USD
recovery takes on a firmer footing, USD/TWD
is expected to reverse higher, towards 28.0 in
1Q22 and 28.2 in 2Q22.
Quarterly Global Outlook 3Q 2021
8 EXECUTIVE SUMMARY
UOB Global Economics & Markets Research
Asian FX USD/THB: With growth risks still skewed to USD/VND: While the FX manipulator label of
the downside, we continue to be defensive Vietnam was dropped in April, the US Treasury
on the THB. Moreover, Thailand’s previously will continue enhanced engagements with
strong current account surplus – a strong factor Vietnam on FX practices. Furthermore, the
that underpinned the THB’s outperformance SBV has also reduced the frequency of its FX
in the past couple of years has since dwindled intervention (to keep the VND from rising) to
significantly. Furthermore, the latest hawkish once a week instead of daily from February.
shift from the Fed may exert further pressure All these mean is that while the upcoming Fed
on the THB. Overall, we reiterate our view of taper may weigh on the VND, depreciation
further THB weakness, with updated forecasts pressures on the VND would be limited as
at 32.5 /USD by end-2021 and 33.2 /USD by it invites scrutiny from US authorities. Our
mid-2022. updated USD/VND forecasts are 23,000 in
3Q21 and 4Q21, followed by 23,100 in 1Q22
USD/PHP: Both external and internal and 23,200 in 2Q22.
forces remain supportive of PHP over the
next 6 months and would help offset part of USD/INR: While the virus situation has
the depreciation pressures due to the Fed’s seemingly improved, India’s growth outlook
tapering plans. As such, we see limited remains uncertain. In addition, the latest
losses of the PHP to 48.70 /USD (vs spot of double-down of bond purchases (G-SAP
48.40 /USD) across 3Q21 and 4Q21. Next 2.0) by the RBI in its latest June meeting and
year, as the Fed’s normalization comes into India’s dual deficits are structural tailwinds
sharper focus together with increased political which may continue to weigh on the INR.
uncertainty when Duterte’s term ends, we Externally, the Fed tapering may also spur
expect the PHP to weaken further to 49.0 / portfolio outflows and adds to the downside
USD in 1Q22 and 49.5 /USD in 2Q22. of the INR. Overall, we keep to our upward
trajectory of USD/INR and reiterate our
forecasts at 76.0 in 3Q21, 76.5 in 4Q21, 77.0
in 1Q22 and 77.5 in 2Q22.
Quarterly Global Outlook 3Q 2021
EXECUTIVE SUMMARY 9
UOB Global Economics & Markets Research
“
Central Bank
Current Quantum of rate Next Our Forecast Our
Outlook Rate cuts since 2020 Meeting End-3Q 2021 View/Outlook
The “talk about the talk” about QE tapering and
updated Dot plot during Jun FOMC could set
in motion for taper discussion. Jackson Hole
FED 0.25% -150bps 27-28 July 0.25% Symposium (26 Aug) could see the first hint of
United States taper and we expect first taper to be done in Dec
2021.
The BOJ is not expected to tighten policy anytime
soon and will maintain its massive stimulus in the
next few years. Concerns tilted to the BOJ having
BOJ -0.10% - 15-16 July -0.10% reached the limits of its monetary policy and will
Japan remain in a holding pattern until at least April 2023.
The ECB’s latest announcement – that purchases
under the Pandemic Emergency Purchase
Programme (PEPP) over the coming quarter will
ECB 0.00% - 22 July 0.00% continue to be conducted at a significantly higher
Eurozone pace than during the first months of this year –
reinforces our view that the ECB will remain highly
accommodative for longer.
With “tapering” out of the way, the next question
will probably be how – and when – the BOE will
enter a formal tightening cycle. We doubt any form
BOE 0.10% -65bps 24 June 0.10% of rate increase will happen before 2023.
United Kingdom
The RBA has emphasised that the cash rate path
will be based on actual economic outcomes and
will not be lifted until full employment has been
RBA 0.10% -65bps 6 July 0.10% achieved and inflation is sustainably at target. We
Australia do not see these conditions occurring until late-
2023.
Despite the more positive tone at the latest
meeting, we believe that the RBNZ would want
to wait for the true economic picture to become
RBNZ 0.25% -75bps 14 July 0.25% clearer. Our call remains for the OCR to be
New Zealand unchanged at 0.25% until at least early 2023.
With private consumption continuing to lag,
the PBOC is likely to refrain from broad-based
monetary policy tightening even as credit growth
PBOC 3.85% -30bps 21 June 3.85% will continue to slow. We maintain our forecast for
China the benchmark 1Y LPR at 3.85% for the rest of
2021.
There is comparatively less room for the CBC
to raise its benchmark discount rate given that it
had only cut by 25 bps last year, one of the least
CBC 1.125% -25bps 23 September 1.125% amongst the Asian central banks. The COVID-19
Taiwan uncertainties will likely keep the CBC on hold at
1.125% through 2021.
Quarterly Global Outlook 3Q 2021
10 EXECUTIVE SUMMARY
UOB Global Economics & Markets Research“
Central Bank Current Quantum of rate Next Our Forecast Our
Outlook Rate cuts since 2020 Meeting End-3Q 2021 View/Outlook
The BOK has signalled preparations for an orderly
interest rate normalisation at its May meeting and
sees the ultra-low interest rate contributing to
BOK 0.50% -75bps 15 July 0.50% financial risks if normalisation happens “too late”.
South Korea We expect the first rate hike to take place in 1Q22
if the positive economic outlook is sustained.
BSP has dropped its concerns on the build-up
of second round inflationary pressures in its
May monetary policy statement, and remains
BSP 2.00% -200bps 24 June 2.00% confident that the domestic economy will continue
Philippines to improve. Hence, we expect BSP to keep its
powder dry and use its ammunition with caution.
The improving economic environment and
inflationary risks for the year ahead will likely be
key factors that will determine MAS’ monetary
MAS 0% slope - October 2021 No change policy decision in October 2021. Our base case
Singapore outlook is for the MAS to keep policy parameters
unchanged in its upcoming October 2021 meeting.
With additional fiscal aids to cushion the impact of
full lockdown, we expect BNM to monitor the fluid
situation leading up to July’s meeting. Resumption
BNM 1.75% -125bps 7-8 July 1.75% of rate cuts may be tough in an environment of
Malaysia higher inflation expectations and other central
banks maintaining status quo.
Going forward, we are of the view that BI will
keep its accommodative monetary policy via
other macro prudential, and liquidity-supporting
BI 3.50% -150bps 21-22 July 3.50% measures to effectively transmit the cumulative
Indonesia 150bps reduction of the benchmark interest rate
into the economy. We keep our BI rate forecast
steady at 3.50% for the rest of the year.
We continue to observe that policy space remains
very limited, while fiscal policies will likely do the
heavy lifting in supporting economic growth. In all,
BOT 0.50% -75bps 23 June 0.50% we keep our call for BOT to leave its benchmark
Thailand rate unchanged at 0.50% for the whole of 2021.
With the uncertain outlook, it is likely for the
State Bank of Vietnam (SBV) to stay put for now
and keep its key policy rates unchanged, for the
SBV 4.00% -200bps - 4.00% refinancing rate at 4.0% and rediscounting rate at
Vietnam 2.5%.
Coupled with the strong fiscal response seen in
the recent Union Budget FY2021/22, the sovereign
bond purchases in 2H21 appears to be the choice
RBI 4.00% -115bps 6 August 4.00% policy tool to mitigate India’s slowdown. As such,
India we expect RBI to keep its policy rate unchanged at
4.0% for the whole of 2021.
Quarterly Global Outlook 3Q 2021
EXECUTIVE SUMMARY 11
UOB Global Economics & Markets ResearchReal GDP Growth Trajectory
y/y% change 2020 2021F 2022F 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21F 3Q21F 4Q21F
China 2.3 9.1 5.7 -6.8 3.2 4.9 6.5 18.3 8.0 6.5 5.8
Hong Kong -6.1 6.7 3.0 -9.1 -9.0 -3.6 -2.8 7.9 7.7 5.7 5.4
India -9.0 8.5 6.0 3.0 -24.4 -7.4 0.5 1.6 19.6 8.4 6.6
Indonesia -2.1 3.8 5.0 3.0 -5.3 -3.5 -2.2 -0.7 6.2 5.0 4.9
Japan -4.7 2.5 2.2 -2.0 -10.3 -5.8 -1.4 -1.0 7.8 3.3 1.3
Malaysia -5.6 4.0 5.5 0.7 -17.2 -2.7 -3.4 -0.5 5.6 5.0 5.8
Philippines -9.6 5.5 6.5 -0.7 -17.0 -11.6 -8.3 -4.2 11.5 8.4 6.7
Singapore -5.4 5.5 3.5 0.0 -13.3 -5.8 -2.4 1.3 10.8 6.2 4.0
South Korea -0.9 3.7 3.0 1.5 -2.6 -1.0 -1.1 1.9 5.6 3.7 3.6
Taiwan 3.1 5.9 3.0 2.5 0.3 4.3 5.1 8.9 7.6 3.5 3.7
Thailand -6.1 1.5 3.5 -2.1 -12.1 -6.4 -4.2 -2.6 6.3 2.3 0.8
Vietnam 2.9 6.7 6.8 3.7 0.4 2.7 4.5 4.5 7.0 7.3 8.0
Australia -2.4 4.3 3.2 1.4 -6.3 -3.7 -1.1 1.1 8.4 5.9 3.9
Eurozone -6.6 4.4 4.7 -3.3 -14.6 -4.1 -4.9 -1.3 12.5 2.2 4.3
New Zealand -1.2 4.9 3.3 0.3 -9.2 3.1 1.2 3.6 13.2 0.5 2.3
United Kingdom -10.0 4.7 5.5 -2.2 -21.0 -8.7 -7.8 -8.4 15.6 4.9 6.5
United States (q/q SAAR) -3.5 6.8 2.8 -5.0 -31.4 33.4 4.3 6.4 13.4 3.6 4.1
Note that India’s annual growth refers to its fiscal year print
Source: CEIC, UOB Global Economics & Markets Research
Heat Map Of Key Macro Indicators In The Region
Source: Macrobond, UOB Global Economics & Markets Research
Quarterly Global Outlook 3Q 2021
12 EXECUTIVE SUMMARY
UOB Global Economics & Markets ResearchKey Events In 3Q 2021
July August September
1 July August September
The Communist Party of China China’s Beidaihe meeting, or Russia Legislative Elections
(CPC), which has ruled China “summer summit” is where will be held on or before 19
since 1949, to mark 100th China’s leaders and elders September, to define the
anniversary. from earlier generations have composition of the Russian
an informal, closed-door Parliament’s lower chamber
discussion. (the State Duma) for the next
7-11 July five years.
G20 Finance Ministers and
central bank governors meeting
in Venice, Italy. Negotiation
on international corporate tax
changes could take center
stage.
21-22 September
Federal Reserve policy makers
may articulate their QE tapering
23 July - 8 August timeline in their September
The 2020 Summer Olympics FOMC.
will be held in Tokyo, Japan.
Expect a scale-down event
as overseas spectators are
banned, and stringent health 26-28 August 26 September
protocols for athletes and Kansas City Fed Reserve’s German Federal Election 2021:
officials. annual economic policy Germans will be voting to elect
symposium in Jackson Hole, the 20th Bundestag. The result
Wyoming, is a potential risk – after coalition negotiations
event for Fed to make tapering likely to involve two or three
announcement. In the past, parties – will decide who will
the Jackson Hole Symposium succeed Angela Merkel, who is
has occasionally been used as standing down after 16 years as
a platform to signal major Fed Chancellor.
policy changes.
28 August
The Taiwan Referendum is
meant to settle the debate on:
import of American pork, which
31 July contains ractopamine and
The US Debt Ceiling is the energy security related issues.
maximum amount the US
government is allowed to borrow
to meet its financial obligations.
The Congress voted in July 2019
to suspend the debt limit till 31
July this year. The US national
debt currently exceeds a record
US$28 trillion (as of 16 Jun
2021).
Quarterly Global Outlook 3Q 2021
13
UOB Global Economics & Markets ResearchFX, Interest Rates & Commodities
FX 17 Jun 21 3Q21F 4Q21F 1Q22F 2Q22F RATES 17 Jun 21 3Q21F 4Q21F 1Q22F 2Q22F
USD/JPY 110 112 113 114 114 US Fed Funds Rate 0.25 0.25 0.25 0.25 0.25
EUR/USD 1.19 1.19 1.19 1.17 1.16 USD SOFR 0.01 0.11 0.11 0.11 0.19
USD 3M LIBOR 0.13 0.15 0.18 0.20 0.20
GBP/USD 1.39 1.40 1.41 1.42 1.42
US 10Y Treasuries Yield 1.52 1.75 2.00 2.10 2.25
AUD/USD 0.76 0.75 0.75 0.74 0.73
JPY Policy Rate -0.10 -0.10 -0.10 -0.10 -0.10
NZD/USD 0.70 0.70 0.70 0.69 0.68
EUR Refinancing Rate 0.00 0.00 0.00 0.00 0.00
DXY 91.9 91.7 91.8 92.8 93.2 GBP Repo Rate 0.10 0.10 0.10 0.10 0.10
AUD Official Cash Rate 0.10 0.10 0.10 0.10 0.10
USD/CNY 6.45 6.43 6.43 6.45 6.48 NZD Official Cash Rate 0.25 0.25 0.25 0.25 0.25
USD/HKD 7.76 7.75 7.75 7.75 7.75 CNY 1Y Loan Prime Rate 3.85 3.85 3.85 3.85 3.85
USD/TWD 27.76 27.70 27.70 28.00 28.20 HKD Base Rate 0.50 0.50 0.50 0.50 0.50
USD/KRW 1,132 1,110 1,110 1,120 1,140 TWD Official Discount Rate 1.13 1.13 1.13 1.13 1.13
KRW Base Rate 0.50 0.50 0.50 0.75 0.75
USD/PHP 48.39 48.70 48.70 49.00 49.50
PHP O/N Reverse Repo 2.00 2.00 2.00 2.00 2.00
USD/MYR 4.14 4.14 4.15 4.16 4.17 SGD SORA 0.11 0.16 0.16 0.16 0.24
SGD 3M SIBOR 0.43 0.40 0.40 0.40 0.40
USD/IDR 14,355 14,700 14,800 14,800 14,900
SGD 3M SOR 0.24 0.25 0.25 0.25 0.25
USD/THB 31.39 32.00 32.50 32.80 33.20
SGD 10Y SGS 1.47 1.70 1.95 2.05 2.15
USD/VND 22,964 23,000 23,000 23,100 23,200
MYR O/N Policy Rate 1.75 1.75 1.75 1.75 1.75
USD/INR 74.08 76.00 76.50 77.00 77.50 IDR 7D Reverse Repo 3.50 3.50 3.50 3.75 4.00
THB 1D Repo 0.50 0.50 0.50 0.50 0.50
USD/SGD 1.34 1.33 1.33 1.35 1.36 VND Refinancing Rate 4.00 4.00 4.00 4.00 4.00
EUR/SGD 1.60 1.58 1.58 1.58 1.58 INR Repo Rate 4.00 4.00 4.00 4.00 4.00
GBP/SGD 1.87 1.86 1.88 1.92 1.93
COMMODITIES 17 Jun 21 3Q21F 4Q21F 1Q22F 2Q22F
AUD/SGD 1.01 1.00 1.00 1.00 0.99
Gold (USD/oz) 1,779 1,800 1,850 1,900 1,900
SGD/MYR 3.09 3.11 3.12 3.08 3.07
Brent Crude Oil (USD/bbl) 73 73 76 80 80
SGD/CNY 4.81 4.83 4.83 4.78 4.76
JPY/SGDx100 1.22 1.19 1.18 1.18 1.19 LME Copper (USD/mt) 9,316 10,000 10,500 11,000 11,000
Quarterly Global Outlook 3Q 2021
14 FORECASTS
UOB Global Economics & Markets ResearchASIA Recovery Delayed, Not Derailed
FOCUS
Global GDP growth has been successively upgraded by international agencies, but wealthier
developed economies lead in the current recovery cycle while developing economies visibly
lag. The clear differentiator of an economy’s recovery trajectory is the availability of COVID-19
vaccine.
Much of Asia’s recovery to date has been driven by manufacturing and the related rebound
in exports, but the divergence in rebound for in-person services sectors is delayed by a
slow vaccine rollout, thus holding back a more comprehensive recovery for many Asian
economies.
The downside pressures from the resurgence of the pandemic and the arrival of new
COVID-19 variants in 1H21 consequently led to us downgrading growth projections of
several Asian economies (such as India, Indonesia, Philippines, Malaysia and Taiwan) across
2Q21. That said, we are not expecting a return to recession in 2021 for now, just a softer
recovery and we anticipate gradual improvements in 2H21 as vaccines become more widely
available, although the likelihood of Asia attaining reasonably high vaccination rates (75% of
the population) within the next 12 months is very low.
Upgraded Global After the sharp declines in business activities globally due to COVID-19 pandemic in 2020 (especially
Growth Outlook during 2Q and 3Q), the economic growth outlook in 2021 is much brighter due to the additional
But Divergence fiscal support in key large economies (US, Eurozone), the accelerated vaccine rollout and take-up
In Parts of Asia rates (especially in developed economies), better disease prevention and control measures (for
some countries/regions), gradual return/adapting to “a new normal”, and low base of comparisons
(notwithstanding the subsequent resurgence of COVID-19 infections).
Across the second quarter, international agencies including the International Monetary Fund (IMF),
in its Apr 2021 WEO, upgraded its global economic growth forecast to 6% in 2021 (from 5.5% made
previously in Jan 2021), after an estimated contraction of 3.3% in 2020. At 6%, that will be the
fastest pace of global growth since 1976 but also comes off the steepest annual downturn of the
post-war era last year as the pandemic brought commerce around the world to a near stand-still
at times. That upgrade largely reflected a rapidly brightening outlook for the US economy, which
the IMF projected growing by 6.4% in 2021, the fastest since the early 1980s (UOB Est 6.8%).
Meanwhile, the Organisation for Economic Cooperation and Development (OECD) on 31 May, also
revised its global economic growth higher to 5.8% this year and 4.4% in 2022 (from its estimates
of 5.6% and 4.0% respectively in its previous forecasts released in March) as did the World Bank
(8 Jun) which projected global growth to reach 5.6% in 2021, and thereafter to moderate to 4.3% in
2022, and then to 3.1% in 2023.
While it is good news to see growth rates turning positive and the worst phase of the pandemic
over, a number of countries and regions are seeing new waves of infections (from India to Thailand,
and many developing economies where the vaccine rollout is at a less advanced stage compared
to developed economies), and some are back into lockdown mode again – a reminder that this
pandemic is still with us and remains a global challenge and a huge uncertainty, especially in the
very near term.
While the downside Even as the global economy returns to growth, it will be an uneven recovery differentiated across
risks to growth are economies with developed economies (led by the US) leading the charge, while many developing
more pronounced
economies lagged as the availability of vaccines appear to be the clear differentiator of an economy’s
versus the upside risks,
we are not expecting recovery trajectory. That said, while the downside risks to growth are more pronounced versus the
a return to recession upside risks, especially in the immediate two quarters (as shown by the “pessimistic” scenario in
in 2021 for now, just a the growth trajectory charts and table below), we are not expecting a return to recession in 2021 for
softer recovery. now, just a softer recovery.
Quarterly Global Outlook 3Q 2021
ASIA FOCUS 15
UOB Global Economics & Markets ResearchMuch of Asia’s Much of Asia’s recovery to date has been driven by manufacturing and the related rebound in
recovery to date exports. And within these economies, while some sectors are affected less and are even thriving
has been driven by (such as electronics-related manufacturing and e-commerce), other sectors and employees are
manufacturing and
the related rebound still under pressure from social distancing measures, movement restrictions, and extended border
in exports. closures (such as tourism/travel, aviation, accommodation, entertainment, F&B, among others).
The divergence and delayed rebound of in-person services sectors is thus holding back a more
comprehensive recovery for many Asian economies.
ASEAN’s economy China’s 2020 GDP expansion of 2.3% stood out as one of the few economies with positive growth
is likely to rebound in amid the pandemic. We expect 2021 GDP growth of 9.1% in anticipation of stronger pent-up
2021 by about 4.9% demand as vaccination programs worldwide get underway. As a whole, ASEAN’s economy is
on the back of strong
likely to rebound in 2021 by about 4.9% (2020: –3.4%) on the back of strong Asia macroeconomic
Asia macroeconomic
numbers especially numbers especially that of exports, with the region led by China’s economic recovery.
that of exports, with the
region led by China’s But the downside pressures have arisen from the resurgence of the pandemic and the arrival of
economic recovery. new COVID-19 variants in 1H21. As a consequence, we downgraded growth outlook of several
Asian economies (such as India, Indonesia, Philippines, Malaysia and Taiwan) across 2Q21 before
the projected gradual improvements in 2H21 as vaccines will likely become more widely available.
However, the likelihood of Asia attaining reasonably high vaccination rate within the next 12 months
is still low, based on available data and our estimates.
Chart 1: After The 2020 Plunge, World Trade Has Recovered Robustly
With Asia Leading The Upward Momentum…
Source: Macrobond, UOB Global Economics & Markets Research
Chart 2: …In Tandem With The Surge In Asian Industrial Production
From The COVID-19 Induced Declines More Than One Year Ago
Source: Macrobond, UOB Global Economics & Markets Research
Quarterly Global Outlook 3Q 2021
16 ASIA FOCUS
UOB Global Economics & Markets ResearchChart 3: However, Tourism Numbers Remain Well Below Pre-Pandemic Levels….
Source: Macrobond, UOB Global Economics & Markets Research
Chart 4: …And The Economies Which Are Most Dependent On Tourism,
Are Worst Hit As Would Be Expected
Source: Macrobond, UOB Global Economics & Markets Research
Quarterly Global Outlook 3Q 2021
ASIA FOCUS 17
UOB Global Economics & Markets ResearchSelected ASEAN Economies – With the ongoing pandemic, below we outline the divergence and
downside uncertainty (as shown by the spread between base and pessimistic scenarios) which is
likely to be the widest in 2Q and 3Q 2021, before narrowing in the subsequent quarters.
INDONESIA Growth Trajectory – Base, Optimistic, Pessimistic
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
1Q20 2Q20 3Q20 4Q20 1Q21 2Q21F 3Q21F 4Q21F 1Q22F 2Q22F 3Q22F 4Q22F
Base Pessimistic Optimistic
Risk Factors To Recovery And Growth Outlook
Downside - a sudden upturn in cases due to the emerging COVID-19 variant, which could
diminish the recovery prospects. The country’s ability to minimize the virus spread amidst the
ongoing vaccination drive and continuation of the fiscal support will be the key to growth trajectory.
Upside - the approval of a private vaccination program (namely Gotong Royong vaccination
program) will help to accelerate the inoculation rate.
MALAYSIA
Growth Trajectory – Base, Optimistic, Pessimistic
10.0
5.0
0.0
-5.0
-10.0
-15.0
-20.0
1Q20 2Q20 3Q20 4Q20 1Q21 2Q21F 3Q21F 4Q21F 1Q22F 2Q22F 3Q22F 4Q22F
Base Pessimistic Optimistic
Risk Factors To Recovery And Growth Outlook
Downside - ongoing pandemic related uncertainties, if stricter containment measures are rein-
troduced or extended further, slow vaccine roll-out, weaker-than-expected global recovery, high-
er cost pressures, and taper tantrum risks that could exacerbate financial volatility and Ringgit
weakness.
Upside – If vaccination rates accelerate and domestic COVID-19 infection rate is contained that
allows more economic sectors to reopen on a sustained basis and normalise, effectiveness of
fiscal measures, a stronger-than-expected global recovery.
(Domestic political developments when state of emergency ends on 1 Aug 2021 also plays a
critical role in the economic landscape).
Quarterly Global Outlook 3Q 2021
18 ASIA FOCUS
UOB Global Economics & Markets ResearchPHILIPPINES Growth Trajectory – Base, Optimistic, Pessimistic
20.0
15.0
10.0
5.0
0.0
-5.0
-10.0
-15.0
-20.0
1Q20 2Q20 3Q20 4Q20 1Q21 2Q21F 3Q21F 4Q21F 1Q22F 2Q22F 3Q22F 4Q22F
Base Pessimistic Optimistic
Risk Factors To Recovery And Growth Outlook
Downside - could mainly emanate from further extension of stricter community quarantine, delays
in vaccine supplies and inoculation program, heightened global commodity supply constraints
which stoke CPI inflation beyond the central bank’s target range, and year-end weather-related
natural disasters.
Upside – mainly from a faster-than-expected safe reopening of economy following a progressive
vaccination program, a stronger-than-expected global recovery that lifts the nation’s exports and
overseas remittances inflows, further improvement in outsourcing activities due to higher global
digital adoption, and expedition in government’s mega projects
SINGAPORE
Growth Trajectory – Base, Optimistic, Pessimistic
15.0
10.0
5.0
0.0
-5.0
-10.0
-15.0
1Q20 2Q20 3Q20 4Q20 1Q21 2Q21F 3Q21F 4Q21F 1Q22F 2Q22F 3Q22F 4Q22F
Base Pessimistic Optimistic
Risk Factors To Recovery And Growth Outlook
Downside - a re-spike of COVID-19 cases, which result in another circuit breaker in 2H21, GDP
growth may fall to as low as 3.0% in 2021.
Upside - improving global economic backdrop, uptick in semiconductor demand, and Singapore’s
continued success in vaccinating its population against COVID-19.
Quarterly Global Outlook 3Q 2021
ASIA FOCUS 19
UOB Global Economics & Markets ResearchTHAILAND Growth Trajectory – Base, Optimistic, Pessimistic
10.0
5.0
0.0
-5.0
-10.0
-15.0
1Q20 2Q20 3Q20 4Q20 1Q21 2Q21F 3Q21F 4Q21F 1Q22F 2Q22F 3Q22F 4Q22F
Base Pessimistic Optimistic
Risk Factors To Recovery And Growth Outlook
Downside - one of Asia’s most affected economy since 2020, the resurgence of COVID-19 is the
key reason for Thailand’s relatively softer performance year-to-date.
Upside - a quick resolution to managing COVID-19 through an acceleration of vaccination of its
population could see Thailand’s borders reopening by 4Q21.
VIETNAM
Growth Trajectory – Base, Optimistic, Pessimistic
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
1Q20 2Q20 3Q20 4Q20 1Q21 2Q21F 3Q21F 4Q21F 1Q22F 2Q22F 3Q22F 4Q22F
Base Pessimistic Optimistic
Risk Factors To Recovery And Growth Outlook
Downside - vulnerable to further business disruptions given the slow pace of vaccination and
presence of more contagious virus variants.
Upside – In a much better position to handle outbreaks and the government is aiming to secure
150 million vaccine doses this year to cover 70% of its population.
Quarterly Global Outlook 3Q 2021
20 ASIA FOCUS
UOB Global Economics & Markets ResearchBased on the spread between the base case and the other two scenarios, most of the Asian economies seem to be seeing
the balance of risks to GDP growth more to the downside, except for some exceptions like China, Japan and New Zealand.
Real GDP Growth Trajectory
Scenario Actual Base Optimistic Pessimistic
y/y% change 2020 2021F 2022F 2021F Diff 2022F Diff 2021F Diff 2022F Diff
China 2.3 9.1 5.7 9.7 0.6 6.0 0.3 8.7 -0.4 5.5 -0.2
Hong Kong -6.1 6.7 3.0 7.6 0.9 3.7 0.7 5.5 -1.2 2.5 -0.5
India -9.0 8.5 6.0 10.0 1.5 7.0 1.0 6.5 -2.0 5.0 -1.0
Indonesia -2.1 3.8 5.0 4.8 1.0 5.5 0.5 2.0 -1.8 4.0 -1.0
Japan -4.7 2.5 2.2 4.0 1.5 2.6 0.4 1.7 -0.8 2.0 -0.2
Malaysia -5.6 4.0 5.5 5.0 1.0 6.0 0.5 3.0 -1.0 4.5 -1.0
Philippines -9.5 5.5 6.5 6.7 1.2 6.8 0.3 4.3 -1.2 6.2 -0.3
Singapore -5.4 5.5 3.5 6.5 1.0 4.0 0.5 3.0 -2.5 2.5 -1.0
South Korea -0.9 3.7 3.0 4.3 0.6 3.6 0.6 3.0 -0.7 2.6 -0.4
Taiwan 3.1 5.9 3.0 6.5 0.6 3.8 0.8 5.0 -0.9 3.0 0.0
Thailand -6.1 1.5 3.5 2.0 0.5 4.0 0.5 0.0 -1.5 2.5 -1.0
Vietnam 2.9 6.7 6.8 7.1 0.4 7.0 0.2 5.4 -1.3 6.9 0.1
Australia -2.4 4.8 3.2 5.8 1.0 4.2 1.0 2.0 -2.8 2.3 -0.9
New Zealand -1.2 4.0 3.3 5.2 1.2 4.7 1.4 3.0 -1.0 1.4 -1.9
Source: CEIC, UOB Global Economics & Markets Research Esitmates and Forecasts
For India, full-year growth are illustrated based on its fiscal calendar
Looking from the perspective of real GDP returning to pre-pandemic level (4Q 2019), it is quite telling that most of the North
Asian economies have already done so by 1Q 2021, but most of the ASEAN economies are likely to achieve that much later
this year. The extreme differences are between Vietnam (already exceeded in 1Q 2021) and Thailand (to exceed only by 4Q
2022, well lagging behind its ASEAN peers).
The Quarter When Real GDP Level (seasonally adjusted where available) Exceed GDP of 4Q 2019
y/y% change 4Q19 3Q20 4Q20 1Q21 2Q21F 3Q21F 4Q21F 1H22F 2H22F 1H23F
China Based on index level x
Hong Kong HKD 695.89bn x
India INR 36.1tln x
Indonesia IDR 2,770tln x
Japan JPY 547tln x
Malaysia MYR 355.7bn x
Philippines PHP 4.92tln x
Singapore SGD 121.8bn x
South Korea KRW 469.78tln x
Taiwan NTD 4.87tln x
Thailand THB 2.8tln x
Vietnam VND 1,214tln (non SA) x
Australia AUD 497bn x
Eurozone EUR 2.85tln x
New Zealand NZD 66.1bn x
UK GBP 545bn x
US USD 19.354tln x
Source: CEIC, UOB Global Economics & Markets Research Esitmates and Forecasts
Quarterly Global Outlook 3Q 2021
ASIA FOCUS 21
UOB Global Economics & Markets ResearchWith the exception of Singapore, most of the ASEAN economies are unlikely to achieve 75% of fully vaccinated population in the next
12 months. That implies, a longer wait for the recovery of in-person services sectors such as tourism, and in turn, will hold back a more
broad-based recovery for these economies.
Timeline For 75% of Population Fully Vaccinated (UOB Estimates)
y/y% change 2Q21F 3Q21F 4Q21F 1Q22F 2Q22F 3Q22F 4Q22F 1Q23F 2Q23F 3Q23F 4Q23F Beyond 2023
China x
Hong Kong x
India x
Indonesia x
Japan x
Malaysia x
Philippines x
Singapore x
South Korea x
Taiwan x
Thailand x
Vietnam x
Australia x
Eurozone x
New Zealand x
UK x
US x
Source: Macrobond, UOB Global Economics & Markets Research Esitmates and Forecasts
Quarterly Global Outlook 3Q 2021
22 ASIA FOCUS
UOB Global Economics & Markets ResearchFOMC Let’s Talk About Talking About Tapering
FOCUS
In the June FOMC, the Federal Reserve’s (FED) acknowledgement of the beginning of the
“talk about the talk” about Quantitative Easing (QE) tapering during FOMC Chair Powell’s
post-meeting press conference, as well as the updated economic and interest rate projections,
could now set in motion for taper discussion which will lead to the fleshing out of the tapering
process of its asset purchase program.
We project the first indicative hint could be released during the Jackson Hole Symposium (26
Aug) and further articulated into a pledge of the taper timeline in the 21/22 September 2021
FOMC.
We now expect the first taper to be carried out in December 2021 and the tapering process
will last for nearly 1.5 years until May 2023. Thereafter, we project two 25bps rate hikes in
2023, first to 0.25%-0.50% in June and then to 0.50%-0.75% in December.
FED Begins Post-June 2021 FOMC decision, we have revised our Quantitative Easing (QE) tapering timeline
“Talking About and brought forward our FED rate hike expectations to 2023 (up from 2024).
The Talk” For
QE Taper Even though the June FOMC statement was largely within expectations, the factors that shifted
our FED policy timeline were FOMC Chair Powell’s post-meeting press conference, the updated
economic (updated Summary of Economic Projections) and interest rate projections (Dot plot chart).
1. Inflation while transitory, may be an increasing concern - The FED, as widely expected,
kept its policy rates and asset purchase program unchanged in its June FOMC. It also made
no change to its inflation assessment in the FOMC text as it continued to succinctly note that
“Inflation has risen, largely reflecting transitory factors” (same as April FOMC).
That said, the most material adjustment to the forecasts was seen for 2021 inflation as both
headline and core PCE in 2021 were revised higher, to 3.4% (previous forecast: 2.4%) and
3.0% (previous forecast: 2.2%) respectively. This was not unexpected given the recent price
developments, but FED’s transitory theme remained intact as the subsequent inflation in 2022
(2.1%) and 2023 (2.2%) were similar to previous forecasts while the long term PCE inflation
remains anchored at 2%. (Please refer to Table in our report, US Jun 21 FOMC: Talk About
Taper Talk, With Hikes Brought Forward To 2023, dated 17 Jun 2021)
During his post-decision press conference, FOMC Chair Powell while maintaining his mantra
that the recovery is incomplete, risks remain and “substantial further progress” still some way off,
he highlighted inflation has increased notably in recent months and will likely remain elevated
in coming months before moderating. He added that there is upward pressure from rebound in
spending and the bottleneck effects putting upward pressure on inflation have been larger than
anticipated. He assessed that inflation could turn out to be higher and more persistent than the
FED expected, and the central bank would be prepared to adjust policy if inflation expectation
moved too high. He also did not dismiss the possibility that inflation will stay high for longer
than expected, and feed into expectations, and that by 2023, the FED views that inflation will
be higher in relation to high employment. All these comments signaled a hawkish outlook
for inflation, in our view.
Quarterly Global Outlook 3Q 2021
FOMC FOCUS 23
UOB Global Economics & Markets Research2. Shifting rate hike expectations towards 2023 among FOMC participants – According to
its updated June summary of economic projections and its Dot plot chart, the FOMC will still
keep its policy rates at 0.0%-0.25% range (median at 0.1%) in 2021 and 2022, but the median
view of the appropriate FED funds rate at end-2023 has now moved up to 0.6% (from 0.1%
previously in March).
Importantly, the number of the FOMC’s 19 participants (including voters and non-voters for this
year’s FOMC) have turned less dovish: 7 participants now expecting a rate hike in 2022 (up
from just 4 participants in March 2021 FOMC) while 13 participants (a majority) now expect
a hike in 2023 (up from 7 in March). Of this majority, 11 participants expect at least two 25bps
rate hikes.
During the press conference, Powell noted that many participants forecast conditions for lift-
off will be met sooner than previously thought although he was also quick to clarify that the
Dot plot projections do not represent a committee decision or plan. That said, the bias for rate
normalization has clearly shifted away from the previous line in the sand (i.e. 2024).
3. FOMC Chair Powell is shifting position too – That’s right. Powell looked like he has shifted from
his previous position of “it is not time yet” to begin talking about QE taper, to acknowledging
that officials discussed the cutting back on its bond-buying program at the June FOMC,
characterizing it as “talking about talking about” meeting.
Powell noted “assuming that is the case (of continued progress ahead toward that objective), it
will be appropriate to consider announcing a plan for reducing our asset purchases at a future
meeting. So at coming meetings the committee will continue to assess the economy’s progress
toward our goals and will give advanced notice before announcing any decision. The timing, of
course, will depend on the pace of that progress and not on any calendar.”
Another important point was that Powell viewed that progress toward the FED’s dual
employment and inflation goals was happening somewhat faster than anticipated. He
particularly noted the sharp rebound in growth that now has the FED seeing GDP growth at
7% in 2021.
FOMC Outlook – While the latest June FOMC statement contained no surprises, the comments from Powell’s press
QE Tapering Could conference and the updated economic and interest rate projections, suggest to us that there is a
Now Happen By shift forward in the FED policy timeline. The beginning of the “talk about the talk” of QE taper could
End-2021, Rate now be set in motion for taper discussion which will lead to the fleshing out of the tapering process
Hikes By Mid-2023 of its asset purchase program.
In our view, the In our view, the first indicative hint of taper could be released during the annual Jackson Hole
first indicative hint Symposium (26 Aug) and further articulated into a pledge of the taper timeline in the 21/22
of taper could be September 2021 FOMC.
released during the
annual Jackson Hole
Symposium. We now expect the first taper to be carried out in December 2021 and the tapering process
will last for nearly 1.5 years until May 2023. Thereafter, we project two 25bps rate hikes in
2023, first to 0.25%-0.50% in June and then to 0.50%-0.75% in December.
If all these factors This is premised on the return to economic/social normalcy on the continued successful rollout of
remain in place, vaccinations across the US, additional US stimulus in the form of Biden’s infrastructure spending,
and with the US the continued jobs recovery in the current cycle (which remains about 7 million jobs below pre-
economy, jobs
pandemic level but is picking up pace in recent months), and barring a serious resurgence in
market and inflation
continue their COVID-19 infections and deaths due to COVID-19 variants. If all these factors remain in place, and
uptrend, then the with the US economy, jobs market and inflation continue their uptrend, then the taper talk will quickly
taper talk will quickly become more than just “talk”.
become more than
just “talk”.
Quarterly Global Outlook 3Q 2021
24 FOMC FOCUS
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