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Trade war may hit Asian economies

The US-China trade war may damage Asia’s export-reliant economies. Tightening global liquidity could also weigh on business activity by pushing up borrowing costs, while capital outflows are also a risk. China’s economy is expected to grow 6.3 per cent in 2019, slower than its 6.4 per cent forecast in July. Though domestic consumption in China seems to be quite robust and supporting a 6.6 per cent growth this year, how the further escalation of the trade dispute will directly affect consumer sentiment is unknown. China has set a growth target of around 6.5 per cent this year.

China has started to roll out growth boosting measures as the trade war threatens to put further pressure on the already cooling economy. For Southeast Asia, moderating export growth, quickening inflation, net capital outflows and a worsening balance of payments have dimmed the outlook, with growth this year projected to slow to 5.1 per cent from the July forecast of 5.2 per cent.

However, inflation across the region is expected to remain under control, helped by country-specific factors like moderate food price inflation in India and China and fuel subsidies in Indonesia and Malaysia. Also Asian countries have enough policy space to handle shocks and pressure from currency depreciations.