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The Asian economies are expected to witness subdued trade in the coming months, following the severe protectionist policies to be followed by the United States President-elect Donald Trump. Also, Trump-style protectionism, if it materializes, will significantly disrupt globalization and weigh negatively on the Asian trade nexus.
Asian’s exports are confronted with a structural overhang from reduced import intensity in the US and China, structurally lower G3 investment, and scarce political support for free trade post-Brexit and ahead of European elections next year. Such restrictions on trade will more than negate any positive growth spillover from a US fiscal stimulus.
Moreover, a steeper US yield curve could divert huge capital flows from Asia, exerting downward pressure on Asian currencies and consequently, limiting monetary policy space. Nonetheless, some Asian economies are already turning Keynesian by judiciously using fiscal policy to deliver a countercyclical punch to lift domestic demand, which will likely become the key determinant of overall economic resilience, ANZ reported.
In addition, the sensitivity of global trade to global income growth has diminished after the global financial crisis in 2008-09 and is expected to remain subdued or even fall further. Given that trade accounts for a rather high proportion of GDP in many Asian economies, the low trade multiplier is effectively acting as a significant drag on growth.
Also, there is a risk that it will morph from a trade recession into a more generalized regional growth slowdown via income channels due to lost export and trade revenue, the report added.
"For the other Asian economies, we expect ASEAN-5 to gradually emerge as a key export destination as well, thanks to the region's rising middle class and growing capacity as an integrated market for goods and services," ANZ commented in the report.
