Asia's capex trend has already moved 2 per cent above pre-COVID path, making this recovery the fastest compared with the last three cycles, Morgan Stanley said on Monday. The strength in external demand has been a key driver of this recovery with real exports already having risen 5 per cent above pre-COVID path.
Within the region, north Asian economies (China, Korea and Taiwan) and Japan have seen led this recovery, said Morgan Stanley in a research paper. In India, new commodity and machinery and transport equipment related manufacturing investment projects surged on two-year CAGR basis.
Consumer goods-related manufacturing investment projects have lagged relatively, and new construction and real estate investment projects are also posing a drag on the headline series. In Asia overall, capex in exports and commodity-related sectors have seen a much stronger pickup so far while infrastructure and domestic consumption related sectors have been slow to recover.
"While exports will continue to be a key driver, with 80 per cent-plus of adult population being vaccinated by end-2021, we see consumption recovery from early 2022 supporting a more broad-based improvement in capex trend in the next 12 to 18 months." Over the medium term, while China regulatory reset will likely weigh on its investment growth from 2023, there will be offset from potentially stronger recovery in India and ASEAN, which are finally emerging from deep cyclical slowdowns, said Morgan Stanley.
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