Trade war not the only headwind to Asian growth

In the event that rising trade tensions lead to a significant fall in US imports from China, it would have a sizeable impact, not just on China, but also on other countries such as Taiwan and Malaysia which export a lot of intermediate goods to China. Even if a full-blown trade war fails to materialise, GDP growth across Emerging Asia is likely to slow steadily over the next year, with weaker export demand set to offset the boost from looser fiscal policy. The outlook for monetary policy is mixed. Indonesia, the Philippines, Pakistan and India have all hiked interest rates recently, and further tightening looks likely in all four countries. Elsewhere, however, with inflation under control, we expect interest rates to remain on hold. Currencies and equity markets are likely to remain under downward pressure, as the two factors that have pushed them lower in recent months – rising risk aversion and climbing Treasury yields – look set to persist for a while longer.