East Asia growth to ease to 5.4% this year

The Tsim Sha Tsui observation deck that overlooks Victoria Harbour and the skyline of Hong Kong.
The Tsim Sha Tsui observation deck that overlooks Victoria Harbour and the skyline of Hong Kong.PHOTO: AFP

MANILA - Growth in East Asia is expected to ease this year, as headwinds from trade disputes among the world’s largest economies and rising interest rates present risks to the region’s outlook, the Asean+3 Macroeconomic Research Office (Amro) said on Thursday (May 3).

Amro, an international organisation set up by the Asean+3 countries to conduct macroeconomic surveillance of the region and to provide support for Chiangmai Initiative Multilateralisation (CMIM), said Asean’s 10 economies, as well as China, Japan and South Korea would grow collectively by 5.4 per cent this year, from 5.6 per cent last year.  

A further contraction to 5.2 per cent is predicted for next year.

Singapore growth is expected to be 3 per cent this year and 2.8 per cent next year, compared to 3.6 per cent last year.

Amro said near-term risks from protectionist measures the United States is lining up against China, the European Union and its other major trading partners, as well as a faster-than-expected tightening in financial conditions caused by the US Federal Reserve’s interest rate hikes, could dampen growth from resilient domestic demand, export growth and stable inflation.

"If these risks materialise, there would be spillovers to the region through capital outflows, higher borrowing costs, and lower trade and investment flows," it said.

"These could derail world trade recovery."

In a news briefing shortly after the Amro report was released, Asian Development Bank president Takehiko Nakao warned: "If trade is interrupted, there will be large damage to Asian countries, as well as to other countries in the world."

China has blamed the US for trade frictions amid escalating threats of tariffs on billions of dollars worth of goods between the world's two biggest economies, triggered by US frustration with China's trade and intellectual property policies.

Top US officials arrived in China this week armed with tough talk about Beijing's need to change its trade practices.

But China appears set to take a hard line.

Chinese officials said they would not agree to a US$100 billion (S$133 billion) reduction in the trade deficit that the Trump administration has demanded, and they do not plan to engage on ambitious US demands to curb an industrial plan known as Made in China 2025.

China is expected to grow 6.6 per cent this year before slowing to 6.4 per cent next year. The world's second-largest economy expanded 6.9 per cent last year, Amro said.

Amro said punitive tariffs imposed by the US on solar panels, washing machines, steel and aluminium "has been relatively mild so far".

US President Donald Trump could, however, line up more tariff measures that could hurt the economies not just of China, but also of Japan, Korea, Malaysia and Vietnam.

That could "exert a significant impact on the region's exports", said Amro.

"While the near-term impact is yet to be seen, escalation of trade conflicts is clearly negative, posing longer-term downside risks for regional economies whose growth model are based on the global supply chain," it added.

The US Fed last raised rates in March, and policymakers signalled two or three more hikes this year.

Amro warned that these could lead to capital outflows, higher sovereign yields, higher borrowing costs and debt refinancing risk.