Economies in Asia Sustain Solid Growth, But External Risks on the Rise, Amro Says

By Fabiana Negrin Ochoa and Amanda Lee

Economies in Asia had solid growth in the first half of the year, but risks like the outcome of the U.S. election loom large, says a new report from Amro, a multilateral organization.

"Recent developments have shifted the risk landscape for the Asean+3 region," said Hoe Ee Khor, chief economist at the ASEAN+3 Macroeconomic Research Office, known as Amro.

The "Asean plus three" region includes the 10 economies of the Association of Southeast Asian Nations, as well as China, Japan and South Korea.

Regional growth has been solid in the first six months of the year, buoyed by an exports recovery fueled in part by the artificial-intelligence boom. Inflation is largely in check and domestic demand has held firm, Amro said in a quarterly update Thursday.

Still, the organization has cut its growth forecast for the region to 4.2% from the 4.4% projected in July, and flagged mounting uncertainties.

Weaker-than-expected U.S. data has renewed concern about a slowdown in the world's largest economy, which could curb the Asia exports recovery. Continued economic malaise in China is another headwind that could weaken regional trade, investment and tourism, Amro said.

Spikes in financial market volatility like the meltdown in August can't be ruled out, and geopolitical developments pose another threat.

The result of the U.S.'s November election "will have major ramifications for the region's economic outlook, especially if it points to a sharp escalation in U.S.-China trade tensions," the report said.

A severe escalation of U.S. protectionist measures could bring growth in Asean+3 to its lowest since the Asian Financial Crisis--excluding the pandemic years--Amro estimates. Under such a scenario, where Washington slaps 60% tariffs on Chinese imports, a 10% tariff on goods from other countries and they retaliate proportionally, regional growth could fall to 3.6%. That would compare with 4.3% in 2023.

Middle East tensions could also have an impact, mainly by driving up prices for oil, transport and logistics. But that doesn't look set to derail economic momentum at this stage, Amro said at a press briefing.

Efforts are being made to contain the conflict and economic conditions in Asia are robust enough to withstand any immediate spillover effect, Khor said.

Despite the forecast cut, the economic picture remains fairly rosy, with Amro expecting growth to be backed by external trade, domestic demand, and tourism.

It sees Asean+3 growth improving to 4.4% in 2025, an upgrade from its prior view of 4.3%.

Higher growth is projected in 10 out of 14 economies covered in the forecast for 2025, thanks in part to global monetary policy easing.

That, plus China's recently announced stimulus to support its economy "will have positive spillover effects on the rest of region," Khor said.

Write to Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com

(END) Dow Jones Newswires

October 03, 2024 03:59 ET (07:59 GMT)

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