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TUESDAY, JUNE 17, 2025
Red Sea crisis could fan Asia's inflation anew, delay rate cuts

Bloomberg Special

Claire Jiao; Bloomberg
09 March, 2024, 08:35 am
Last modified: 09 March, 2024, 09:02 am

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Red Sea crisis could fan Asia's inflation anew, delay rate cuts

The supply chain disruptions could cut as much as 0.5 percentage points off Asia’s economic growth this year, and add up to 0.4 percentage points to the inflation rate

Claire Jiao; Bloomberg
09 March, 2024, 08:35 am
Last modified: 09 March, 2024, 09:02 am
The ripple effect from the complete closure of any waterway can be felt thousands of miles away. PHOTO: BLOOMBERG
The ripple effect from the complete closure of any waterway can be felt thousands of miles away. PHOTO: BLOOMBERG

Asia could see slower economic growth and a resurgence of inflation as escalating violence in the Red Sea snarls shipping between the region and their trade partners in the US and Europe, according to the Economist Intelligence Unit.

The supply chain disruptions could cut as much as 0.5 percentage points off Asia's economic growth this year, and add up to 0.4 percentage points to the inflation rate, the EIU said in a report.

"Given that Asian exports were already hit last year by weak Western demand, the recent attacks will weigh further on various export-dependent economies, particularly in Southeast Asia, where container trade has nearly collapsed," the report read, citing Indonesia, Thailand and Malaysia as among those most vulnerable.

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Most of the region will likewise be hit indirectly through the spike in shipping costs, especially those that rely on food imports such as the pacific island countries, New Zealand, India and Pakistan.

"Higher inflation could leave central banks in countries such as the Philippines, Australia and India in a more difficult situation in terms of finding an opportunity to begin monetary easing," the EIU said.

Protracted shipping disruptions could also push manufacturers to seek options closer to their end-user markets, rather than tapping the "stretched" supply chains in Asia, it said.

Based on EIU estimates, shipments from northwest Europe now take 56 days to reach Malaysia and Singapore from 32 days before the Houthi attacks began in November. For China, Hong Kong and Taiwan, it lengthened to 55 days from 42 days.

Global trade defies headwinds to post rebound

Resilient demand has allowed global shipments to pull off an unlikely rebound in the face of continuing supply chain disruptions, according to Bloomberg's Trade Tracker.

Only two out of 10 indicators in the trade dashboard were in "below normal" territory in March, its best reading since at least end-2022. The improvement was driven by a healthy exports performance out of trade bellwether Taiwan, buoyed by stronger demand for electronics. The outlook likewise brightened among US firms as new export orders expanded for the first time in 19 months.

Shipping volumes in the major ports of LA and Hong Kong even climbed to "above normal" territory in the latest Trade Tracker readings, despite escalating violence in the Red Sea that's keeping logistics costs elevated.

Europe, however, remains a laggard. While global manufacturing finally ramped up in February, data showed output for the euro area and the UK remained in contraction territory. German firms remained deeply pessimistic.

The green shoots of recovery are a welcome sign amid warnings from the World Trade Organization that global commerce may come in weaker than expected this year, hampered by the choke points in vital shipping arteries. Sticky inflation in developed markets have also kept the much-anticipated lowering of interest rates at bay.

Germany-based DHL Group remains cautious at least through the first half of 2024. While the slump in intra-European shipments is deeper than the company expected, global trade is "bottoming out, so there's clearly not the free-fall that we've seen in the middle of last year," CEO Tobias Meyer told Bloomberg Television.

We've selected measures across shipping, sentiment and export volumes to watch. For the clearest indication, we measured how far each gauge is from historic norms. These data update in real time from the Bloomberg Terminal as they're reported.


Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.

Top News / World+Biz / Asia / Global Economy

Red Sea / inflation / Asia

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