US and Europe still dominant forces driving Asean growth: economists

A SIGNIFICANT share of the exports from Asean to China is re-exported to the US and Europe for final consumption. This makes the Western economies still the dominant driving force for the region’s economic growth, despite China’s growing influence, economists say.

China, they say, serves as the final node of global supply chains, assembling and re-exporting a significant portion of its imports to other parts of the world. But the final demand lies in the Western economies. 

In its latest Global Investment Views report for March, Amundi Asset Management said that China’s reopening was positive for the global economy, but the event would mainly support its domestic performance. 

Amundi’s group chief investment officer Vincent Mortier said: “We are unsure whether China’s reopening will be enough to offset the negative impulse from slowing US growth.”

S&P Global Ratings’ Asia-Pacific economist Vishrut Rana, meanwhile, noted that China’s rebound cannot offset the slowdown in Western economies.

“While the Chinese recovery should dampen the effect of the Western slowdown, the net impact on export demand should generally be negative this year. We expect the deceleration in the US and Europe to exceed the acceleration in China,” he said.

Despite China’s growing economic ties with the region, the West remains more important as a source of demand for most Asia-Pacific economies, Rana noted. The region is also enmeshed with the US and Europe with strong trade, financial and business linkages.

With a slowing trade and electronics cycle, economic data has already weakened in the more open Asia-Pacific economies such as Taiwan, Malaysia and South Korea.

Taking into account the final demand destination and the value-added processing, Rana said the significance of the US and the eurozone combined is greater than that of China for most Asean countries, including Singapore, Vietnam, the Philippines and Thailand.

“Subdued export market growth would weigh more heavily on these economies. On the other hand, more domestically oriented economies would face less economic impact from stronger or weaker export market growth,” he added.

Singapore, Vietnam and Thailand have the highest global exposure, with external demand accounting for more than 40 per cent of the economy for each of these countries. 

These are closely followed by Taiwan, Malaysia and Hong Kong, where the value-added going to external destinations is slightly under 40 per cent of their respective economies.

India, Indonesia and Japan are the more domestically-oriented economies in the Asia-Pacific region. These economies each have less than 8 per cent of their value-added exposed to the US, the eurozone and China combined. More than 80 per cent of their total value-added originates domestically.

China is also among the domestically-oriented economies, with about 86 per cent of value-added dependent on domestic demand. 

The importance of China as an export destination is the strongest for Australia. Demand from China accounts for about 7 per cent of the economy, compared with 3 per cent for the US and eurozone combined. 

Economists expect this year’s growth to slow in the US and Europe, which together account for nearly 40 per cent of global gross domestic product in nominal US dollar terms. 

In Europe, growth is set to slow with higher interest rates, reduced hiring and weaker housing markets hitting activity.

In the US, higher interest rates are also leading to slower activity, and household savings buffers are gradually falling. In contrast, the market consensus is for China to grow slightly more than 5 per cent in 2023 as it exits its zero-Covid stance. 

ING chief economist Iris Pang said the pain points for China’s economy this year would come mainly from weaker growth in the US and European export markets.