Asian Economies Being Pushed Towards Recession By Trade War

There is a threat of a slowdown in the global economy as well as warning signals of a downturn that has rattled financial markets because of the trade war between the United States and China. While there is no immediate threat of recession on the biggest economies in Asia, there are clear signs of them slowing down. And some of the smaller economies in the region such as Hong Kong and Singapore are facing risks.

These economies have been described as the “innocent bystanders” in the US-China trade war by Louis Kuijs, head of Asia economics at Oxford Economics. “These are small, open economies, where trade – and trade with China – is extremely important,” says Kuijs.

China

There has been a dent in the growth of the second largest economy of the world for years now and according to the latest figures, the country’s growth in the second quarter was 6.2%  which is the slowest since the 1990s. The trade war has directly affected the economy because about 20 per cent of its exports went to the US. Burt what is more fatal for business is the uncertainty about when this trade war would come to an end.

“The one thing that is affecting business plans is the uncertainty of the US-China trade war, probably more important than the tariffs,” says Kuijs. “The uncertainty is a major factor of [the concerns] we see globally.”

Japan

An impact China affects the rest of Asia, says Kuijs. For example, the Chinese slowdown has impacted business confidence in Japan which is already under pressure because of slowing global demand for its exports.

However, it second quarter figures shows a better than expected growth at 0.4 per cent compared to analysts estimates of 0.1 per cent, driven primarily by consumer spending. And yet, a long-awaited sales tax increase in October would impact the third-largest economy of the world.

“Conditions probably won’t remain as healthy as they are now, as domestic demand is set to weaken after the tax hike,” Capital Economics Japan economist Marcel Thieliant says.

India

Slowing of domestic demand and weak investment has hampered growth in the third largest economy of Asia. The latest growth figures of India touched a 5 year low at 5.8 per cent and analysts expect that the next reading could be lower. The Indian economy has been spurred by domestic consumption which has slowed down in recent quarters. For example, there has been a huge decline in car sales with a 31 per cent drop in July in sale of passenger vehicle.

Hong Kong

A slowdown in China, the trade war and local political unrest has embroiled the economy of this financial hum of Asia. According to some analysts, the economy of this island city could soon be pushed into recession by the combination of the factors mentioned above. In the three months to June, there was shrinkage of 0.4 per cent in gross domestic product. But the figure was before the start of the pro-democracy protests that have gripped Hong Kong for more than two months and have affected businesses such as tourism and retail.

Singapore

Weak global demand, slowing growth in China and the trade war has impacted the economy of this trade-dependent city state. Slowing demand for electronics around the world has clouded its economic forecast because it is dependent on high-tech exports.

In the second quarter, there was shrinking of 3.3 per cent in its economy on a seasonally adjusted annualised basis. The local government cut down forecast for the entire of 2019 to between 0 per cent and 1 per cent.

South Korea

Earlier this year, there were concerns that a recession might hit South Korea. But huge government spending helped the economy to avoid that outcome and it registered a growth in the second quarter.

In the three months to June, there was a 1.1 per cent Q-on-Q growth in its economy. In the previous quarter, the sharpest contraction since the 2007-08 global financial crisis was reported by the economy. Dropping tech exports is the primary cause of the economic condition – which was led by a drop in demand for electronic goods globally which accounts for around 30 per cent of the total exports of the country.

(Adapted from BBC.com)



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