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Marcella Chow
Marcella Chow

Macroscope | How intra-Asian trade can sustain regional recovery as US and China economies slow

  • Asia will undoubtedly feel the knock-on effects of a downturn in US growth, but that does not mean the recovery will end
  • Decreasing exposure to the US market, the ongoing economic reopening and recovery in domestic consumption will cushion the impact

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Customers sit in a restaurant with gantry cranes in the background at Port Klang, Selangor, Malaysia, on August 12. As countries reopen, intraregional trade in Asia could help offset the effects of economic slowdowns elsewhere. Photo: Bloomberg
Marcella Chow
With US consumer confidence hitting a lull and growing uncertainties over China’s economy, there are increasing concerns that a slowdown in global growth could derail Asia’s recovery. To gauge the trajectory of Asia’s rebound in the case of a US economic slowdown, a useful starting point is the internal and external drivers behind the region’s growth over the past two years.
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Externally, the US consumption boom, starting in mid-2020, fuelled an unprecedented rise in Asian exports. The internal driver, meanwhile, was kick-started by a relaxation of domestic Covid-19 restrictions, leading to a rise in domestic demand and a resumption of manufacturing activity.
As the saying goes, though, all good things must come to an end. While export growth in Asia is still above pre-pandemic levels, there are increasing signs that the external driver of Asia’s economic rebound is running out of steam.

This does not necessarily mean Asia’s recovery is coming to an end. The recent 1.9 per cent decline in Taiwan’s July new export orders – a useful indicator of future export demand – does highlight the external risk of a global slowdown. However, the variables affecting the trajectory of Asia’s rebound are much more nuanced and will depend both on the balance between the external and internal growth drivers and how the US economic slowdown unfolds.

While a US recession is not the expected scenario, Asia will undoubtedly feel the knock-on effects of a downturn in US growth. The most obvious contagion risk is a slowdown in export growth. Exports have been a key driver of Asia’s economic development over the past decade, with trade accounting for around 60 per cent of East Asia’s nominal GDP between 2014 to 2019. As a result, export growth moves reasonably in tandem with regional countries’ earnings.

To navigate this uncertainty, it’s important to understand that the impact on each Asian economy will be different, as the build-up and export exposure varies from country to country. For example, exports from Vietnam and Thailand are the most vulnerable to a US slowdown as they have higher export-to-GDP ratios, with exports to the US accounting for around 28 per cent and 17 per cent of their total exports respectively.

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