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Macroscope
OpinionComment
Sylvia Sheng
Sylvia Sheng

Macroscope | Booming US economy is good news for emerging Asia’s exporters, but not so much for Asian equities

  • US data in March reflects an economic turnaround that is likely to persist, given the strong fiscal and monetary support and rising vaccination rate
  • Emerging Asia will benefit from the rise in US demand, but expect the higher US yields and a stronger dollar to put pressure on the stock markets

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A worker gestures while a crane prepares to load a container onto a truck in Lianyungang, Jiangsu province on March 24. China’s exports rose in March as demand picked up in key overseas markets, including the US. Photo: AFP
Sylvia Sheng

The pace of America’s economic recovery is picking up. Recent US data points to a surge in economic activities in March, following some weather-related weakness in February. Meanwhile, US business survey results are going from strength to strength.

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In particular, the ISM manufacturing PMI rose to its highest level since 1983, while the ISM services PMI hit an all-time high in March. US labour market conditions also improved notably, with almost a million new jobs created in March, much stronger than the average increase of 132,000 in the previous three months. 

This resurgent momentum in the US economy should persist until at least the end of this year, powered by several strong tailwinds. First, the US is leading many major economies in its vaccination roll-out – more than a third of the US population has already received their first dose. The rapid vaccine roll-out has notably brought down daily new infections since the start of the year and is likely to facilitate further economic reopening and the normalisation of service consumption.

Second, monetary policy is likely to remain accommodative, bolstering the recovery. Despite the very strong economic data recently, US Federal Reserve chairman Jerome Powell reiterated the central bank’s commitment to a dovish policy stance last week.

At the same time, the US government is pumping an exceptionally large amount of fiscal support into the economy. The US Congress passed a US$1.9 trillion coronavirus relief package (8 per cent of gross domestic product) last month, in addition to the US$900 billion one passed in December. This new package will provide a huge boost to household income, with a new round of stimulus cheques of up to US$1,400 per eligible person on top of the US$600 sent out in early January.
This comes at a time when the US household savings rate is already elevated, as a result of the pandemic relief packages introduced last year. The fiscal largesse has prompted many to upgrade their US GDP growth forecast, with the Fed’s projection for 2021 revised up, to 6.5 per cent in its March report, compared to 4.2 per cent in December. And this does not take into account the US$2.3 trillion infrastructure proposal that was unveiled by President Joe Biden this month.
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