Asian integration update: Some stagnation but outlook remains sanguine; Global economy: Brace for a bumpy ride – CAA Weekly

Highlights from the CAA Weekly Table

• Global trade regime: Trade integration efforts in Asia are humming along, with the CPTPP likely to take effect whereas RCEP is facing resistance from India. Meanwhile, Asian currencies have remained relatively resilient despite the sell-off in emerging market currencies. As Turkey and Argentina’s travails worsen, there will be more pressures, Asia’s currency resilience will remain intact if policy makers remain pro-active.
• Geopolitics: Asia must expect more geopolitical contestation. Convinced now that the US is out to contain its rise, China will proceed to modernise its navy to challenge American maritime supremacy and US-China relations will remain testy for the foreseeable future.
• Asian politics: President Xi has re-asserted his authority over the Chinese political elite but social unrest point to the enormity of the task ahead. Malaysia’s Dr. Mahathir has taken a publicly combative stance toward Chinese investments but both sides are likely to find an amicable solution. Domestically, Anwar’s plans for a comeback could set the stage for a tussle with Mahathir. In the Philippines, a series of bombings have fueled calls for an extension of martial law in Mindanao.

 Asian integration update: Some stagnation but outlook remains sanguine

• Asian integration has deepened in the last 20 years but this progress has now plateaued. Intra-Asian trade and financial integration has decelerated even as intra-Asian flows of FDI and tourism climb higher. In 2015, intra-Asian tourism accounted for 80% of Asia’s total tourist arrivals, a trend that has persisted since 2006 (78%).
• But much of ASEAN “integration” reflects Singapore’s centrality in economic flows in ASEAN. Trade with Singapore constituted 84% of intra-ASEAN trade in 1991, falling to 53% in 2017. Even more telling is that trade between Singapore and Malaysia made up 51% of intra-ASEAN trade in 1991, and comprised a significant 23% of intra-ASEAN trade in 2017.
• Looking ahead, Asia fundamentally understands that economic integration facilitating trade and other associated flows remains crucial to its continued development and prosperity. A slew of economic projects in the works will undergird this.

Global economy: Brace for a bumpy ride

• While global economic momentum is clearly slowing, the US is poised to go from strength to strength on the back of fiscal stimulus. A resurgent US economy buoys Asian exports, at the expense of financial stability as liquidity becomes scarcer and the Federal Reserve presses ahead with its monetary tightening.
• Yet an erratic Trump Administration poses the biggest risk to Asian economies, as the embattled President resorts to unilateral imposition of tariffs to shore up his political base.
• Policymakers in Asia have to thread carefully to mitigate the risks confronting their economies. Central bankers have to stay ahead of the curve while the government needs to rein in populist spending to retain the confidence of markets and investors.

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