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Bangkok Post
Bangkok Post

Moody's upbeat on decoupling trend

Emerging markets in Asia-Pacific are expected to benefit from supply chain decoupling, as the US and Europe are looking to diversify risks in security-related industries, say analysts.

Steven Cochrane, chief Asia-Pacific economist at Moody's Analytics, told a recent online event held by Moody's that some of the decoupling between the US and China is taking place within the production of intermediate goods.

"A lot of it will likely be tied to incentives rather than government policies, particularly in Europe and the US where incentives are available to develop the semiconductor industry domestically," said Mr Cochrane.

"There certainly is an opportunity for the rest of the Asia-Pacific economy to pick up on this de-risking or 'China plus one' sentiment. This is where India, along with parts of Southeast Asia, often come into play because of their vast amount of resources in terms of the labour market."

According to data from Moody's Analytics, electronics exports from Southeast Asia and Taiwan have been declining since late 2022, with a pronounced contraction in Singapore and South Korea. The domestic export rate of electronics dropped under 20% during the first three months of this year.

Denise Cheok, an economist at Moody's Analytics, said a correction is occurring related to high export prices that peaked in 2021 and 2022. Exports have also been hit by a slowdown in major economies such as China, the US and the EU, which underpins much of the demand for electronic products.

"We are still looking for a bottom for this current downturn. We do not see the turnaround just yet, as it is expected to extend perhaps to the end of the year before demand slowly starts to pick up in 2024, where we forecast there will be a recovery in the global economy," said Ms Cheok.

"For the medium and long term, prospects for the tech sector are still very positive. Ultimately, the sector will be supported by progress in artificial intelligence, electric vehicles as well as other technology developments."

In addition, Mr Cochrane said with inflation gradually coming down the overall outlook for many sectors in the Asia-Pacific economy are positive, leading to a gradual recovery in demand for semiconductors.

However, central bank policy remains the most important risk, as prolonged high interest rates or a premature easing of monetary policy could create market volatility, he said.

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