Moody's: US-China Battles Still Hits Asian Export Weakness

JAKARTA (TheInsiderStories) – Moody’s Investors Service has examined and identified 23 ranked countries in the Asia-Pacific, namely the countries that are the most profitable and the most vulnerable to falling volumes of global trade, due to ongoing and broad-based tensions between the United States (US) (Aaa stable) and China (A1 stable), according to its released today.

According to Moody’s, Asian export growth has slowed substantially in recent months as the global economy has cooled, including demand from China.

When trade volumes decline, there are many countries in the region that are vulnerable to slower growth in China demand, or conversely can benefit from a long-term shift in investment and trade connections. Countries with higher trade exposure to China face the biggest slowdown in economic growth.

The countries in this region too vulnerable to the effects of the second round of slower Chinese imports due to lower demand other trading partners who face pressure from their respective exposure to China.

Moody’s points out, Hong Kong, Singapore, Taiwan, Vietnam and Mongolia are the most open in the Asia Pacific experiencing a slowdown in sustainable trade in China. While Taiwan and Vietnam also get the most benefits – along with Thailand and Malaysia – from the transfer of trade and investment away from China.

“Given the uncertain growth prospects and trade policies, and generally tighter financing conditions, slower investment growth will strengthen trade slowdown, especially in Hong Kong, Singapore, Taiwan, Vietnam and Mongolia,” said Vice President Moody and Senior Credit Officer Christian de Guzman.

He considered, the benefits of trade and investment transfers from China would depend on industry structure, scalability, and labor costs, would potentially benefit Taiwan, Thailand, Malaysia and Vietnam, although the supply chain reconfiguration would only occur over time.

He outlined, higher public spending can reduce sluggish external demand, especially in Singapore (Aaa stable), Korea (Aa2 stable) and Taiwan (Aa3 stable), due to the strong fiscal position of these countries the scope for potentially greater support.

Likewise countries like Bangladesh (Ba3 stable) are also less vulnerable to softening Chinese demand because of their dependence on trade outside the Asia Pacific.

“Asian exports has been broadly based, reflecting the weakening of global output and, in particular China, gave its role as a final source demand and in the regional supply chain,” Moody’s said.

According to Moody’s report, Asian exports entered 2019 with a weak footing. The growth of Asia Pacific goods exports slowed to 4.3 percent year-on-year in the fourth quarter of 2018, down from recent highs of almost 14 percent in the third quarter of 2017. The weakening of export shipments ending last year has been broad-based, reflecting deteriorating prospects for global growth and, in particular, China.

While demand for imports lower than the largest economy in the region reflects domestic and external factors, including slower domestic demand because the availability of credit has tightened and trade disputes with the US.

In addition, the decline in commodity prices has contributed to the economic slowdown in Indonesia (Baa2 stable) and New Zealand (stable Aaa), both of which recorded a mild year-on-year contraction in goods exports in the fourth quarter.

Moody’s estimates that export prospects in the region will continue to weaken, given projections slowdown in China’s real GDP growth to 6.0 percent in 2019 and 2020 from 6.6 percent in 2018, from 6.9 percent in 2017.

Deceleration transmission China’s economy to other parts of the Asia Pacific through trade is very important, given China’s role as a source of final demand and its position in the regional supply chain.

Assuming demand from China weakens evenly for all types of goods, we estimate the direct impact on trading partner exports China’s import growth slowed to 5 percent in 2019, half of the 9.9 percent increase in 2018.

Hong Kong and Mongolia are most exposed to remembering the high concentration of their exports absorbed by China. Singapore, Vietnam, Taiwan, Korea and Malaysia are also vulnerable.

While more granular data for the private sector is not available, a slowdown (lighter) in the formation of gross fixed capital in Indonesia and the Philippines (Baa2 stable), two of the economies that are more domestically driven among the large emerging markets in the region, possibility of following the local policy rate increase.

So far, Indonesia and the Philippines will continue to experience a weakening of total public infrastructure investment.

At present, China still limits foreign ownership and other protectionist measures limit the country’s openness to Foreign Direct Investment (FDI). With that, Thailand, Vietnam, Taiwan and Malaysia have the greatest potential to benefit from trade and investment transfers.

Beyond this intra-regional trade integration, some countries have obtained preferential or tariff-free access to foreign markets, for example, Australia, Korea, and Singapore, which have FTAs ​​with the US, while Japan has an FTA with the European Union (EU, Aaa stable).

Written by Daniel Deha, Email: daniel@theinsiderstories.com