IN the wake of escalating trade tensions between the United States and China, the Asean+3 Macroeconomic Research Office (AMRO) has lowered its regional growth projections. Baseline growth is now expected at 4.9 per cent in 2019 and 2020, down from the previous 5.1 per cent estimate in early May, AMRO said in the June edition of its monthly update of the Asean+3 regional economic outlook.
In the adverse trade scenario where the US places a 25 per cent tariff on remaining China imports, growth is expected to slow to 4.7 per cent in 2019 and 4.5 per cent in 2020. "Regional economies with greater GVC (global value chain) participation oriented towards final demand outside the region will be more affected," said the report.
With the exception of Vietnam and the Philippines, export values around the region have weakened since October, led by Japan and China.
Although Japan was a bright spot in Q1 2019, its monthly indices of business conditions signal a weaker outlook going into Q2.
In line with the global trend, purchasing managers' index (PMI) indicators have been deteriorating in the Asean+3 region. The report noted that the region's average range between maximum and minimum PMI readings is narrower than the global range, as well as that of the Eurozone, developed markets, or other emerging markets, adding: "The historically smaller difference for this region suggests that manufacturing activities are more closely linked through the regional supply chains, compared to other regions."
In financial markets, regional emerging markets continue to see positive net capital inflows on the back of strong foreign demand for bonds. Regional equity markets have also rebounded in tandem with global markets, boosted by major central banks' signals that they will ease monetary policy if the growth outlook keeps worsening.
However, most regional currencies have depreciated on the back of concerns over escalating trade tensions and the recent addition of several Asian countries to the US currency manipulation watchlist.