Asian Insights

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The Trump Presidency and Risks for Asia – CAA Weekly

  • Global: The OECD composite leading indicators point to steady global growth, but this reviving global momentum will have to withstand the uncertainty caused by political developments in the US. The case for Fed tightening in December remains strong.
  • Asian politics: The provocative actions of the Localists in Hong Kong provoked China’s intervention which has increased worries over Hong Kong’s autonomy.
  • Asian economies: Central banks across Asia held their fire power. In China, weaknesses in foreign trade could be exacerbated by trade wars President-elect Trump follows through on his campaign rhetoric. Taiwan’s growing exports point to a positive near-term outlook for Asia’s export-driven economies. India’s surprise de-monetisation could see the economy slow in the short-term, but the bold move bodes well for India’s prospects.

A Trump presidency poses multiple risks for Asia

  • The election of Donald Trump as the President of the United States will weaken the US by deepening political rifts there as his policies will create strong backlashes, adding to ongoing controversies which will distract him from effective leadership. American exceptionalism will be diminished with many ill effects being visited on Asia.
  • Asia’s trade-driven economies have every reason to fear possible protectionist measures while his demand to reconfigure existing trade agreements and repudiate the TPP puts a halt to further trade integration. Geopolitical stability could also be compromised by American rivals such as North Korea testing the new and inexperienced President.
  • The biggest losers in Asia are small and highly open economies that depend on the US as a market and as a security guarantor such as Taiwan and Singapore. China will be a target of trade measures at a time when the painful rebalancing its economy is undergoing makes it more vulnerable to exogenous shocks. North Korea will also become a growing threat to South Korea and the region.

How have risks for Asia changed recently?

  • With the global economy gaining momentum and showing signs of rising trade intensity, Asian exporters can expect a pick-up in external demand. Coupled with expansionary policy support, Asia could see a strong rebound.
  • However, the impact of one-off shocks could prove to be more damaging and reverse the gains Asian economies have been seeing more recently. We assess the prospects.

The world economy is gaining momentum; Positive structural changes afoot in Thai economy – CAA Weekly


Key highlights from the CAA Weekly Table

  • Global: With the US economy gaining momentum, the issue is not whether the Fed hikes in December but whether it will be forced to raise rates even more aggressively thereafter. The UK High Court ruling on Article 50 adds more uncertainty over Brexit, increasing currency volatility in Asia.
  • Is China really gaining support: ASEAN nations’ moves to forge greater cooperation with China do not mean that they are beholden to China, at America’s expense. Smaller powers will always strike a balance with larger powers in the region, so as to maximise leverage.
  • Signs of weakness in Asian economies despite stronger global economy: The Chinese economy is progressing well despite no fundamental resolution of risks. Continued weakness in credit growth could hold the Indian economy back. As Singapore companies face mounting debt woes, expect the economy to see further deterioration.

The world economy: Rising cyclical momentum and trade intensity – a positive for Asia

  • Global growth continues to display signs of strength marked by sustained improvements in the global composite purchasing managers index and rising trade volumes.
  • Diminishing cyclical headwinds are boosting external demand for Asian exports, but two key factors constrain the prospects of a longer-term trade recovery: First, the impending revival of capital spending. Second, the drag from structural headwinds to trade.
  • Trade could continue to falter in the long-term if capital spending does not recover sufficiently to outweigh the dampening effect of structural forces.

Thailand: Exports buoy short-term outlook; economic flexibility undergirds long-term growth

  • Even as the country mourns the death of revered King Bhumibol, the Thai economy continues to make strides in its economic upswing, led by export growth. Continued support from the government in terms of public sector expenditures on consumption and investment remains manifestly important.
  • As farm incomes rise, private consumption has remained robust. However, falling rice prices have dimmed consumer sentiment somewhat. There are also signs of a pick-up in investment in certain sectors as exports turn positive. Inflationary pressures are likely to be benign and increase only gradually, while the Thai Baht has stayed relatively unchanged in terms of REER. Monetary policy will remain accommodative without further easing.
  • Positive structural changes are afoot as the economy displays its great ability to spontaneously adapt and adjust to new realities. This economic flexibility puts Thailand in good stead in the long run.