Asia-Pacific region's export downswing likely to persist through 2019 even if short-term U.S.-China trade deal is agreed, says S&P Global Ratings

The downswing in the Asia-Pacific region's export cycle is expected tp persist through 2019 even if a short-term U.S.-China trade deal is agreed, according to S&P Global Ratings’ report published today, titled "Asia-Pacific Quarterly Forecasts: Tougher Trade Winds Through 2019."

S&P Global Ratings has further lowered the growth forecast for Asia-Pacific to 5.2 percent, from 5.3 percent at the end of 2018, mostly due to weaker trade conditions.

"The good news is that financial conditions in have eased," said Shaun Roache, S&P Global Ratings' Asia-Pacific chief economist. "This will help Asia-Pacific economies pivot to domestic drivers of growth, offsetting the slower export growth."

China's slowdown is partly responsible for the turn in the trade cycle. Its import slowdown has been broad-based across almost every major category as the effects of tighter policies rippled through the economy. Led initially by weaker infrastructure investment, the import slowdown now reflects slowing consumption growth and, most recently, capital expenditure in the manufacturing sector.

The outlook for China is for stabilizing growth due to easing financial conditions. History suggests the easing in financial conditions should be enough to put a soft floor under growth by the middle of 2019, even though downward pressure on growth will remain.

The key risks to the Asia-Pacific economic outlook have eased since late 2018, but have not fully dissipated. Three main risks include U.S.–China trade tensions, tighter-than-expected financial conditions, and a declining effect from easing policy in China. Of these, the prospect of a U.S.-China trade deal has taken some risk off the table, the report added.

"Tougher trade winds will mean that the region will have to rely more on domestic demand to lift growth back toward potential, which will require easier policy settings," Mr. Roache said. "However, finding the space to ease policy may be hard in some emerging market economies."