How would a US recession impact Singapore, Malaysia, Thailand amid surging inflation?

The Fed has hiked rates and may do so again, as food supply chain disruptions and surging oil prices have caused inflation levels to hit a 40-year high in the US

If the US were to enter a recession, export-reliant Singapore and Malaysia would be among the worst hit, while remittances to the Philippines may decline, analysts say

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Most Asean states are only just getting their economies back on track after two years of disruptions due to the pandemic. Photo: Xinhua

Published: 7:45pm, 16 Jun 2022Updated: 8:59am, 17 Jun 2022

As countries in Southeast Asia began gradually lifting strict curbs on movement and business activity from last year, central banks in the region were expected to start down the path of normalising their key policy rates to keep in line with anticipated rate hikes by the US Federal Reserve.

Most central banks around the world would adjust their key policy rates in tandem with Fed decisions, to manage volatility in their currencies against the US dollar – which typically strengthens when the Fed raises rates – and imported inflation caused by the weakening value of their currencies.

But the best laid plans by financial policymakers ended up being waylaid by Russia’s unexpected invasion of Ukraine in February, which caused inflation to accelerate beyond what many analysts and central banks were prepared to deal with.

“Nobody expected a spike in oil prices, nobody realised Ukraine and Russia combined contributed to 30 per cent of global wheat production,” Fung Siu, principal economist with The Economist Intelligence Unit, told This Week in Asia. “Animal feed production was especially affected. Already markets were quite tight, they were made tighter by the war.”

The twin effects of food supply chain disruptions and surging oil prices have contributed to inflation levels hitting a 40-year high in the United States, forcing the Fed to approve a 75 basis point increase to its key interest rate on Thursday in a bid to rein in consumer prices.

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