Asian economic growth prospects clouded by slowing global trade amid acceleration in U.S. economy: ANZ Research

The Asian economy’s growth prospects have been clouded by two headwinds. The first is global trade which not only relates to rising trade tensions but also a maturing global trade cycle. The second relates to economy-specific issues impeding the progress of domestic demand, according to the latest report from ANZ Research.

Asian export growth has slowed only modestly from its peak in Q4 2017 and occasionally even surprised to the upside. At the same time, the month-to-month performance has become more volatile and forward looking data, such as the new export orders component of the manufacturing PMIs, have softened in most economies. Therefore, the impetus that exports have customarily provided to incomes in the tradables sector and domestic demand is likely to fade.

The second and perhaps less anticipated headwind to growth is more idiosyncratic to individual economies. In Indonesia and the Philippines, diminishing macro stability has forced a tighter monetary policy which will have a knock-on impact on domestic demand with a lag.

The deterioration in the current account deficit amidst financial market volatility has forced policymakers in Indonesia to adopt an adjustment program that also comprises fiscal tightening and measures to curb imports. GDP growth in 2019 is set to slow from these measures. The tightening in the Philippines is to address both rising external imbalances and inflation.

"Our downwardly revised GDP forecasts reflect these headwinds. The extent of downward revision is not large as the amplitude of the region’s business cycle has also narrowed in the last few years. Nonetheless, as even this modest revision further widens the growth differential with the US, it is likely to weigh on portfolio flows and asset price performance in the region," the report commented.