Deloitte Asia economic report downplays dangers of US-China trade war

15 April 2019 Consultancy.asia

Deloitte has entered the US-China trade tension discussion with a round-up of Asia Pacific economic growth forecasts, stating it that would be a mistake to overstate the dangers.

Big Four professional services leader Deloitte has released its biannual Voice of Asia report exploring the economic prospects for the Asia Pacific region, concluding that it would be a mistake to overstate the dangers of US-China trade tensions – even if they do worsen. Should they do so, regional policy-makers have a number of economic reforms at their disposal, offering the potential for positive economic performance this year.

While the recent US delay to increased tariffs is a positive sign, the worst case scenario according to Deloitte is a continued impasse, given the region’s dependence on trade. “I am concerned that continued imposition of trade restrictions, and uncertainty about future trade relations, will have a chilling effect on investment, a negative impact on trade flows, and a disruptive impact on supply chains,” states Ira Kalish, Deloitte’s Chief Global Economist.

Despite the widely accepted view that a number of ASEAN economies are set to benefit from the US-China trade dispute, irrespective of its outcome, Deloitte describes the overall damage to the Asia Pacific region should tensions escalate through further miscalculation as substantial in the longer term, with most Asia Pacific economies likely to suffer. The best defence, the firm says, is a good offence.Deloitte Asia economic report downplays the dangers of US-China trade warKalish continues, “Absent a reduction in such tensions, the trade war could be an opportunity to implement reforms that boost productivity. It will also likely result in Asian countries seeking to boost trade relations with countries other than the United States.” Further, the report adds, Asia’s markets although losing ground last year did so from a position of strength – together with some recent positive developments for the regional economy.

In terms of levers, which will vary between Asian states according to their individual dependence on trade, the report suggests a number of available short-term options such as raising spending and/or cutting taxes and longer-term supply-side reforms, along with the potential for greater regional trade integration and other measures. Above all, the firm believes there is sufficient policy leeway for the region to contain the risks and remain economically resilient throughout 2019.

“Geopolitical friction and political personalities notwithstanding, the Asia Pacific economies have shown an ability to remain resilient despite the uncertainty surrounding the US-China relationship. In the environment of a continued slowing in global growth, the Asia Pacific economies – which are at vastly different stages of economic development – also have tools at their disposal to help themselves,” the report concludes.

Southeast Asia & Japan

Digging down briefly, outside of the Chinese economic forecast; growth in Vietnam is expected to maintain its pace following a 7.1 percent rise in GDP last year; Indonesia’s economy is looking at growth of around 5.2 percent; Thailand and Malaysia are tipped to remain steady at respectively just below 4 percent and at around 4 to 4.5 percent; the Philippines looks set to drop slightly to around 6.1 percent this year; and Singapore should maintain growth at slightly below its 3.3 percent 2018 rate thanks to its recent expansionary budget.

As a bloc; “The ASEAN economies will continue to benefit from supply side reforms to improve the ease of doing business, increasing their competitiveness. Lower oil prices will add to the positive outlook as most countries, apart from Malaysia, are net importers of oil and will benefit from the global growth resulting from easing oil prices. All this, together with a surge in spending on infrastructure, should strengthen the region’s resilience to external shocks.”

Meanwhile, the report states that the key issues for Japan in 2019 will centre on “US-China trade tensions, the drivers for Japan’s economic growth, the Bank of Japan’s ability to manage any larger-than-expected revaluation of the Chinese RMB, and what measures ‘Abenomics’ has in store for Japan’s economy,” adding that the country is provided some protection from the US-China trade war thanks to a strong footprint across several ASEAN economies.


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