Economists cut growth forecasts for Asia after Trump tariffs

Sydney – Asia is bearing the brunt of new US tariffs that will drag on regional growth through weaker business investment and sentiment, requiring central banks to step in with more interest-rate cuts, economists reckon. 

Economists at Goldman Sachs Group have cut growth forecasts for Asia and predict an easier monetary policy stance in India, South Korea and several South-east Asian countries.

War-torn Myanmar and poverty-stricken Cambodia and Laos were hit with tariffs of more than 40 per cent, as economists said the real target was China.

In Cambodia, more than half of the country’s factories are reportedly Chinese-owned, with the countries exports dominated by garments and footwear.

OCBC Bank’s chief economist Selena Ling said: “The impact on Asean is more pronounced this time.”

She added: “Given a narrower tariff gap between China and previous popular destinations such as Vietnam and Thailand, China’s prior strategy of routing exports through Asean may now be less effective. As a result, the trade dynamic may shift again.”

There will be a “hard-hitting impact” on economic growth for the region, Ms Ling said, singling out Vietnam – with 46 per cent tariffs – as the country set to see the biggest impact, followed by Thailand – at 36 per cent tariffs. She anticipates Indonesia and India will be “more insulated” and the Philippines as the least impacted.

Credit ratings agency Fitch warned that if tariffs remain in place for a prolonged period, “many countries will likely end up in a recession. You can throw most forecasts out the door”.

China, the biggest single target, is now facing a total US tariff burden of nearly 70 per cent, with growth projected to fall by up to 1 percentage point, according to Capital Economics. Analysts anticipate Beijing to issue fresh stimulus measures to soften the blow.

The Trump administration’s tariffs come at a time when Asian economies are already grappling with tepid growth, with sticky inflation keeping some central banks on high alert.

While Australia and New Zealand are among countries that got off relatively lightly with a 10 per cent levy, as small, open economies, they are particularly reliant on global trade to underpin prosperity. 

Money markets are now pricing four more rate cuts in 2025 by Australia’s central bank, up from three previously, which would take its cash rate to 3.1 per cent. 

Ms Ling also revised her central bank forecasts, adding 50-basis points of cuts each for Vietnam, Thailand, Indonesia, India and the Philippines.

Morgan Stanley’s chief Asia economist Chetan Ahya sees the potential for 50 to 100 basis points of additional rate cuts in Asia relative to his current base case, though he worries about the capacity for fiscal policy to buttress monetary easing.

“The magnitude of easing in Asia may be more moderate in this cycle given more limited fiscal space this time around on account of higher public debt to GDP (gross domestic product) ratios,” he said. “We therefore expect more monetary easing than fiscal easing to come.” BLOOMBERG