Developing Asia could grow more slowly than previously thought next year as the US-China trade war inflicts damage on the region’s export-reliant economies, the Asian Development Bank (ADB) said.
Tightening global liquidity could also weigh on business activity by pushing up borrowing costs, while capital outflows are also a risk.
The Manila-based institution kept its 2018 economic growth estimate for the region at 6.0% in an update of its Asian Development Outlook. But it trimmed next year’s forecast to 5.8% from 5.9%.
“Downside risks to the outlook are intensifying,” said ADB chief economist Yasuyuki Sawada, pointing to the potential impact of US-Sino trade tensions on regional supply chains and the risk of sudden capital outflows if the Federal Reserve raises interest rates even more quickly.
The ADB’s 5.8% growth estimate for 2019 would be the slowest for the region since 2001, when it expanded 4.9%.
The report covers 45 countries in the Asia-Pacific.
The ADB’s latest forecasts did not reflect fresh tariffs that the US and China imposed on each other’s goods on Monday.
Sawada said the additional duties would not significantly change ADB’s growth forecasts, but added the “escalating” trade conflict must be closely monitored.
China’s economy is expected to grow 6.3% in 2019, the ADB said, slower than its 6.4% forecast in July and weaker than its 6.6% growth estimate for 2018, which was unchanged from its previous projection.
Domestic consumption in China “seems to be quite robust and supporting 6.6% growth this year”, Sawada said.
“But admittedly we don’t know (how) the further escalation of the trade dispute may directly affect consumer sentiment,” he added.
Beijing has set a growth target of around 6.5% this year, the same as last year, which it handily beat with an expansion of 6.9%.
Chinese authorities have pledged they can still meet the 2018 target, and have started to roll out growth boosting measures as the trade war threatens to put further pressure on the already cooling economy.
For Southeast Asia, moderating export growth, quickening inflation, net capital outflows and a worsening balance of payments have dimmed the outlook, with growth this year projected to slow to 5.1% from the July forecast of 5.2%.
“Policy makers have at their disposal an array of policy tools with which to manage pockets of vulnerability and maintain stability, but they must be applied carefully,” Sawada said.
Inflation across the region is expected to remain under control, helped by country-specific factors like moderate food price inflation in India and China and fuel subsidies in Indonesia and Malaysia, the ADB said.
Sawada said Asian governments have “enough policy space to handle” shocks and pressure from currency depreciations.
The ADB lowered its 2018 economic growth forecast for Vietnam to 6.9% from 7.1% projected previously, partly due to the ongoing trade friction between the US and China.
Vietnam, one of the fastest growing economies in Asia, has an open economy that is heavily reliant on exports, while the US and China are among its biggest trade partners.
ADB lowered its growth forecast as the ongoing trade tension between the US and China could have a spillover impact on Vietnam. However, the ADB outlook is still higher than the Vietnamese government’s target of 6.7%.
