Export and growth prospects deteriorate amid renewed US-China trade tensions
- Amid slowing global trade and escalating US-China trade tensions, we expect GDP in the South East Asia (SEA) region to slow from 5.3% in 2018 to 4.8% this year, before moderating to 4.7% in 2020.
- A sharp policy reversal by the US Federal Reserve and subdued inflation across the region have opened the door for easier monetary policy across the SEA region. We expect Singapore to join Malaysia and the Philippines and move to a more accomodative stance with others to remain on hold for longer.
- A further increase in trade tensions, such as the US imposing tariffs on all Chinese imports, would see a much more prominent slowdown in regional growth. As a small open economy heavily dependent on exports, the Singapore economy would be most negatively affected and would likely dip into recession in 2020.
US-China tensions have recently re-escalated. The US hiked the tariff rate from 10% to 25% on US$200bn of Chinese imports, with China retaliating by raising the tariff rate on US$60bn of imports from the US to 5%−25%. The US has also published an additional US$300bn list of goods, implying that nearly all Chinese imports could face higher tariffs.
Recent developments show how difficult it is to achieve agreement on a range of policies and practices on technology, market access and intellectual property, in a way that goes far enough for the US side, and is acceptable to China. It is still possible that a trade deal will eventually emerge. But, given the souring of the mood, for now we assume that the existing tariffs will not be lifted any time soon.
The re-escalation in trade tensions comes at a time when export growth across the SEA region is already in the doldrums from weaker Chinese import demand, a slowdown in the global ICT cycle, and the increase in trade protectionism over the past year. Indeed, total export volumes were, on average, 1% lower than a year ago in Q1 with uncertainties over external demand also likely to have weighed on firms’ production and investment intentions in the quarter. Overall, GDP growth for the SEA region as a whole slowed to 4.6% year-on-year in Q1, down from 5.3% growth recorded in H1 2018.
The deterioration in export momentum across the region has continued into the second quarter, with only Vietnam bucking the trend. However, even its growth has decelerated from last year. Looking ahead, we expect exports and overall economic growth to come under further pressure from weaker Chinese import demand, the slowdown in the global ICT cycle and increased trade protectionism over the past year.