Trade tensions to dampen Asia’s prospects

By Melissa Luz T. Lopez
Senior Reporter
AN EXPORTS SLUMP will likely carry over into 2019 and weigh down prospects for Asian economies, although a “resilient” and robust domestic economy could unlock faster growth for the Philippines, the United Nations (UN) said.
“Recent indicators suggest that trade tensions are starting to weigh on the region’s exports,” read the UN’s World Economic Situation and Prospects 2019 report published yesterday.
The global organization sees dimmer global activity this year, with the growth expected to ease to three percent from 3.1% in 2018 due to “tapering” industrial production and trade volumes at a time of “escalating” trade disputes and risks of financial stress and volatility.
Continuing tensions between the United States and China, the world’s two biggest economies, will drag overall expansion, following a tariff war imposed on goods against each other.
“A prolonged episode of heightened tensions and spiral of additional tariffs among the world’s largest economies poses considerable risk to the global trade outlook,” the UN said. “The impact on the world economy could be significant: a slowdown in investment, higher consumer prices and a decline in business confidence.”
The impact of these trade tensions — estimated to cover over $250 billion worth of Chinese goods which Beijing matched with equal fervor — has already been felt in several economies, with export orders contracting in China, the Philippines, Korea and Taiwan.
“In 2019, exports are likely to provide less impetus to the region’s growth, given a slower global growth momentum and a softening of the global electronics cycle. The protracted trade dispute between China and the United States is further weighing on the region’s export outlook,” the report added.
Despite this, the UN remains bullish about the Philippine economy, with expectations that growth will clock in at a faster 6.5% this 2019. The economy expanded by a slower-than-expected 6.2% pace last year, bogged down by weak agriculture output as well as an exports slump.
This forecast meant that the state’s 7-8% growth goal for the year will again be missed, but will keep the Philippines among the fastest-growing economies in East Asia next to Myanmar (7.2%), Lao PDR (7%), Cambodia (7%), and Vietnam (6.7%). By 2020, Philippine economic growth will ease to 6.4%.
Bangko Sentral ng Pilipinas Deputy Governor Diwa C. Guinigundo has said the wider trade gap pulled down growth as imports continued to outpace exports, coupled with higher consumer prices which held back consumer spending.
The UN sees domestic inflation at four percent this year, matching the ceiling of the central bank’s 2-4% target range but will drop sharply from the actual print of 5.2% in 2018.
Meanwhile, continued “significant” public spending on infrastructure will stimulate the local economy via the government’s “Build, Build, Build” initiative.
“Growth will be mainly driven by strong government spending and infrastructure investment. However, the economy faces the risk of persistently high inflationary pressures, prompting a more aggressive stance on monetary policy tightening, thus further constraining private consumption,” the UN said.
Across the region, a prolonged trade war will dampen productivity growth and eventually dampen longer-term growth prospects for the global economy, especially those with substantial trade ties with the two nations.