Case study: Regional Trade Perspectives in Asia 2022

Source: BLOOMBERG

Business

Economics

Asia Deepens Regional Ties as Disruptions Roil Global Trade

ByClaire Jiao

9. Februar 2022, 01:30 MEZUpdated on9. Februar 2022, 02:19 MEZ

Countries in Asia-Pacific have strengthened their regional integration during the pandemic, which helped to insulate their economies as supply-chain bottlenecks and restrictions to restrain the virus choked trade elsewhere.

Intra-regional trade grew more than 31% in the first three quarters of 2021, after contracting 3% in the same period the year before, according to a report Wednesday from theAsian Development Bank. Trade within Asia made up 58.5% of the region's total trade in 2020, its highest share in three decades.

Successful virus containment and swift vaccination in Asia's major economies allowed them to become hubs for medical and consumer goods, boosting exports as other countries reopened and demand recovered, the ADB said. The newRegional Comprehensive Economic Partnershiptrade agreement is expected to boost trade prospects further.

"Asia supply chains have been more resilient compared to those in advanced countries," ADB Principal Economist Jong Woo Kang told Bloomberg Television on Wednesday. This has helped keep any widespread inflation pressures at bay in the region, save for sporadic spikes in food prices, he said.

Foreign direct investment into the region also remained resilient, slipping only 1.3% in 2020 compared to a decline of nearly 35% globally.Digital services-- driven recently by fintech, payments, data processing and cloud computing -- are emerging as a key sector, accounting for nearly one-quarter of the region's FDI on average since 2003.

"The strengthening trade and value-chain linkages among economies in Asia and the Pacific are an encouraging sign for a resilient recovery from Covid-19," ADB Chief Economist Albert Park said in a separate statement, adding that the pandemic reversedhard-won gainsin reducing poverty.

Mobility remains a concern, as continued virus outbreaks curb the flow of migrant workers andtourists. Still, remittances are estimated to have grown by 2.5% last year, supported by increased use of digital channels and currency depreciation in their home economies, the ADB said.

With assistance by Adrian Wong

questions

1. Inflation pressures are rather moderate in Asia according to the article. Based on our lectures and the article, define three drivers of inflation. Explain two instruments that central banks can apply to fight inflation. Give at least one reason why inflation is bad for any economy and why central banks usually are obliged by law to fight inflation. (2 marks for each driver and financial instrument; 5 marks for inflation).

2. Explain the reasons mentioned in the article for the increase in intra-regional trade in Asia in 2021. Define which components of GDP benefited from those trends in 2021 (5 marks each; 10 marks in total)?