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Marcella Chow
Marcella Chow

Macroscope | What slowing export demand from China and the West means for the rest of Asia

  • Most Asian economies will be hit but those with strong local demand, a solid tourism recovery and ability to tap AI demand would feel a softer blow
  • As US rate rises taper off, Asian central banks would be freer to cut rates, and if China’s stimulus takes off, the region could see a boost

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Shoppers in a grocery store in Washington on February 15. A fall in consumer and business spending in the West will drag on Asian economic growth. Photo: AFP
Marcella Chow
An expected slowdown in the US economy, coupled with weak growth in Europe and a disappointing recovery in China, will have significant implications for economies across the rest of Asia. The headwinds of slowing growth will primarily manifest through a decline in consumer and business spending in the West.
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In every US recession after 1948 (excluding the pandemic recession), private investment and consumption, on average, were the two negative contributors to gross domestic product. While history doesn’t repeat itself, it often rhymes. Given the high interest rate environment, it may be a matter of time before capital expenditure and household spending slows. This will lead to a fall in export growth in Asian economies.

The export exposure of the six largest Asean economies (Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam) to the United States, European Union and China ranges from 34-57 per cent, while that of North Asian economies such as Japan and South Korea sits at 49 per cent. Australia has an export exposure of around 42 per cent.

But it is also important to consider the contribution of exports towards economic growth. Economies with a high export-to-GDP ratio and substantial exposure to the US, EU and China are likely to experience a material drag from a slowdown in external demand.

For example, Vietnam’s export-to-GDP ratio of 87 per cent with a 28 per cent export exposure to the US suggests it is particularly vulnerable to a slowdown in global goods demand. Given Vietnam’s role as a major exporter of electronic goods, the expected lull in demand for technological hardware will weigh on its export growth.
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The softening in capital expenditure will also hurt exports from economies such as Taiwan, Japan and South Korea, given their reliance on exports of capital goods such as machinery, vehicles and semiconductors.

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