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.
In India, new commodity and machinery and transport equipment related manufacturing investment projects surged on two-year CAGR basis. Within the region, north Asian economies (China, Korea and Taiwan) and Japan have seen led this recovery, said Morgan Stanley in a research paper.
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.
However, other economies such as India and Indonesia could provide some offset to China’s capex slowdown. The onset of US/China trade tensions and Covid-related supply-chain disruptions have prompted corporates to rethink the need to diversify their production. The continued transition toward a multipolar world would continue to reinforce this need.
To capitalize on these trends, policymakers in the rest of Asia have rolled out measures to attract FDI inflows, promote domestic manufacturing and boost infrastructure spending. In particular, India and Indonesia could stand to benefit given their low labour cost, relatively large labour force, and large domestic demand market, the report added.
Meanwhile, 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.
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