Asian countries getting out of pandemic without inflation and supply issues

It is surprising but Asian countries are the only region on the planet where there is no rise in inflation and there aren’t obvious problems with commodity logistics like in other parts of the world. Partly, an absence of long-term lockdowns, which would bring such a sudden growth in demand after the restrictions were cancelled, can explain this. Consequently, central banks’ key rates aren’t increasing either. According to forecasts in 2021, the economies of the region’s countries will go 7,3% up, noted Realnoe Vremya’s columnist, economist with long-term banking experience Artur Safiulin.

The situation around the world and Russia

The end of lockdowns and the world economy’s recovery led to higher demand for primary energy, basic materials and food. Production flexibility in the real sector has its limits and simply doesn’t catch up with the growing demand. The companies’ necessity of filling stocks out of fear of a shortage of supplies worsens the deficit of feedstock and components. The supply reliability index is low at 30-40%, whereas it usually totalled 70-80%. Not all available containers and ships are used due to inadequate supply schedules. Tariffs on container shipping (because of the standstill at ports) and the cost of local delivery (to the client) are growing.

Due to a total deficit of supply, prices for all commodities (timber, cotton, rolled steel, cooper for an electrical grid, non-ferrous metals) seriously became more expensive. A shortage of semiconductors and chips hurt automotive engineering and IT. In this market, the deficit is forecasted to disappear only in 2023. The Bloomberg Commodity Spot Index illustrating prices for 23 types of feedstock has risen to a record high level in the last 10 years.

The quick recovery of the world economy was caused by a money rain from all countries’ governments that are following a stimulating policy to go through the pandemic.

Besides this injection, such factors as a deficit of resources, delayed supplies, logistic problems, higher prices for materials influence the end price for goods. The totality of these factors accelerated inflation around the world.


The USA is the source of global inflation — it has already had the highest inflation level since 1990. The status of the issuer of the world’s key currency obliges it to take decisive actions to stimulate the economy, which was done: trillions of dollars were printed. As a consequence, prices soared for everything — feedstock, food and so on. The expected correction in the commodity market didn’t happen, a stricter monetary policy in the world partly cancels the rise in prices for them.

In Russia, anomalous inflation growth began in late 2020 when the ruble devaluated, which added fuel to the fire. The impact of this factor is considered to be at 1,5%. In other words, if not the fall in the ruble rate, we would be able to keep inflation at 4% (as the Central Bank had planned). Earlier this year, prices grew at such a pace that the state had to take state control measures, which led to more rapid growth.

Many experts doubt that inflation can be handled only with a monetary policy. Given the tone of the Central Bank’s statements this year, the growth of prices is primarily conditioned by stable factors — when demand outstrips supply.

At the beginning of the year, the Central Bank thought that the growth of world prices for goods, which was considered a temporary occurrence.

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Inflation and economic growth in Asian countries

Amid a stricter monetary policy in Latin America and Europe, Asian countries remain a safe haven of economic growth and slight inflation growth, without logistic shocks. Inflation in the region stays below 5% a year, only Pakistan and Sri Lanka demonstrate a higher rate. As a consequence, we see a very moderate increment in key rates — by 175 basis points in Pakistan, 50 basis points in Sri Lanka, 50 basis points in South Korea. To compare, our rate has increased from 4,25 to 7,5% over the year, inflation in November (in annual terms) was 8,1%. Inflation in Brazil is higher (10,7%), the rate grew from 2 to 7,75%.

Paradoxically, food prices in Asia are falling, whereas our food inflation is breaking all records and significantly spoils the statistics. The recovery of economic activity this year is in contrast with a 0,2% fall in 2020, which isn’t much in itself. Except for new industrial countries such as Hong Kong, China, Korea, Singapore, Taiwan, the economic growth will be 7,7% this year and 5,6% next year.

A widespread rise in exports from the region’s countries is registered because of greater economic activity in the world, including the recovery of the processing industry. The pandemic, geopolitical tension, critical obstacles for production, financial turmoil caused by tighter financing conditions are key risks for the growth.

The region itself is very big and its different parts will grow differently. For instance, the economic growth in Central Asia will be 3,4% in 2021 and 4% in 2022. Southeast Asia, which strongly depends on global commerce, will increase by 4,4% this year and 5,1% next year. All this is happening amid the 4% decline in 2020. Trends are obviously changing, which cannot help but please one. Pacific countries that suffer from international restrictions on travel and a decrease in tourism will grow by 1,4% in 2021 and 3,8% in 2022. China will go 8,1% up this year and 5,5% next year, India will do by 11% and 7% respectively.


Short lockdowns made a positive impact

According to the Asian Development Bank, inflation in developing countries in Asia will reduce from 2,8% in 2020 to 2,3%, since the pressure of food prices in India and China will weaken.

China, Hong Kong, Taiwan declared a short lockdown, South Korea did without it. This helped to avoid a sudden rise in pent-up demand after the cancellation of restrictions, as it is still seen in the USA and Europe. The influence of restrictions on the countries’ economies was less manifested due to the conservation of supply chains, logistic expenses are growing less than in other regions of the world. All this has a positive impact on the growth of commodity prices, here it is by far lower than in other regions of the planet.

In conclusion, I would like to note that short lockdowns (or no lockdowns) made a positive impact on the conservation of the balance between demand and supply. High vaccination rates thanks to the local population’s natural sense of duty allowed keeping the price growth within normal limits.

Time will show if this should be considered a temporary phenomenon. But the fact remains a fact — inflation in Asia is lower, GDP growth is higher, companies are provided with orders from all over the world for many years to come. It will be interesting to see how forecasts for the growth of the region’s economies are becoming a reality.

Artur Safiulin

The author’s opinion does not necessarily coincide with the position of Realnoe Vremya’s editorial board.