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Asian economies vulnerable to trade tensions

May 2018

Economic growth in Asian countries – particularly Singapore and Hong Kong – is still heavily reliant on merchandise exports, according to Moody’s Investors Service, and exports make up over 50% of GDP for one-quarter of Asia’s economies. Mounting trade tensions between the US and China are likely to stoke the uncertainties weighing on investment.

  • Japan’s economy shrank during the first quarter
  • Japanese inflation continued to slow down
  • Australia unveiled its annual Budget

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Economic growth in Asian countries – particularly Singapore and Hong Kong – is still heavily reliant on merchandise exports, according to Moody’s Investors Service, and exports make up over 50% of GDP for one-quarter of Asia’s economies. Mounting trade tensions between the US and China are likely to stoke the uncertainties weighing on investment. The electronics sector is particularly vulnerable to further action from the US, and Taiwan, Malaysia and South Korea’s economies are most exposed to risks. Although Asian exports to the EU and US have remained broadly flat as a percentage of GDP since the financial crisis, intra-regional trade has expanded strongly, with China at the heart of the activity. 

“Mounting trade tensions between the US and China are likely to stoke uncertainties”

Japan’s economy contracted at an annualised rate of 0.6% during the first three months of 2018, curbed by a slowdown in domestic consumption. On a quarterly basis, the economy contracted by 0.2%, having grown by 0.1% in the fourth quarter of 2017. Having slowed in March, core consumer inflation continued to lose momentum in April. Core consumer prices rose at an annualised rate of 0.7% during April, following an increase of 0.9% in March. This is still well below the Bank of Japan’s (BoJ’s) “price stability target” of 2%. 

Over May, the Nikkei 225 Index fell by 1.2%, while the Topix Index fell by 1.7%. Medium-sized companies performed better than large caps, and the TSE Second Section rose by 3% over the month. 

In the Australian Government’s annual Budget, key measures included tax reductions for those on low and middle incomes and a scheme to return the economy to a surplus in 2019-20. Australia is one of only ten countries in the world to hold an “AAA” credit rating from all three credit rating agencies. From 2019, those earning between A$37,000 and A$90,000 will receive a cut in taxes; looking further ahead, 94% of Australians are expected to be taxed at the same rate of 32.5% from 2024-25. The ASX All Ordinaries Index rose by 0.9%  

In Malaysia, Mahathir Mohamad became the country’s new Prime Minister, bringing to an end the rule of a coalition that had been in place since 1957. His Pakatan Harapan coalition intends to replace the goods & services tax with the sales & services tax that was in place before 2015, to reinstate some fuel subsidies, and to investigate recent corruption scandals.


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