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Macroscope | Amid the trade war, Asia cannot count on Chinese stimulus to boost growth this time around
- While China’s boost to the property sector in 2016 translated into an increase in commodity imports from emerging Asia, this year’s infrastructure-focused stimulus is unlikely to have the same effect. Meanwhile, trade war headwinds are likely to hit exports from the region
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The resurgence of US-China trade tensions is weighing on equity market performance in emerging Asia. This begs the question of whether prospective monetary and fiscal stimulus measures from China could give the region the needed boost – but markets would be wrong to pin their hopes on this.
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Recent data flow paints a weak picture of the economic fundamentals in the region. In China, the official manufacturing purchasing managers index, which gauges sentiment among factory operators, for May came in notably below market expectations, led by a sharp decline in export orders. Elsewhere in the region, Korean exports, a bellwether of the regional export cycle, have remained in contraction for six consecutive months.
China’s policymakers are already rolling out additional easing measures to shore up the economy. In the past, improvement in China’s growth momentum had meaningful spillovers to the rest of emerging Asia. In early 2016, pickup in China’s activity growth helped to drive a strong recovery in emerging Asia’s export cycle.
This time around, the boost to regional economic growth is likely to be limited.
A key reason the impact will be more muted is the mix of China’s current stimulus measures. In contrast to the 2016 easing cycle, the current stimulus is more focused on infrastructure than property investment.
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