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Trade war

Trade war stings Southeast Asia's export economies

Average growth of ASEAN-5 nations fell to 4.5% in 3Q from 5.5% a year before

Dark economic clouds hang over Southeast Asia as trade war bites into growth   © Reuters

SINGAPORE/MANILA -- The trade war between Washington and Beijing is taking its toll on the export-reliant economies of Southeast Asia, and clouding the outlook for business in the region.

Growth in Indonesia, Malaysia, the Philippines, Singapore and Thailand all slowed on an annual basis in the July-September period after the U.S. and China started to ramp up tariffs.

The growth rate (weighted average) of the five big Southeast Asian economies in the third quarter was 4.5%, down from 5.5% a year earlier, according to calculations provided by the Asian Development Bank.

Singapore grew 2.2% in the previous quarter, down from 4.1% in April-June, data on Nov. 22 showed. This was mainly due to a slowdown in the manufacturing sector. The city-state's economy is expected to grow 1.5%-3.5% in 2019, lower than the projected 3.0%-3.5% growth in 2018.

"There is the risk of a further escalation of the ongoing trade conflicts between the U.S. and its key trading partners, which could trigger a sharp fall in global business and consumer confidence," Singapore's Ministry of Trade and Industry said in a statement.

Thailand was also hit hard. Year-on-year growth there fell to 3.3% in the third quarter from 4.6% in the second.

Exports, which account for more than 60% of Thailand's GDP, fell 0.1% in the July-September period -- a steep drop from a 6.8% increase the previous quarter. This was mainly due to a decline in shipments to China, the nation's largest export destination.

"The persistent trade war has started biting our exports in the third quarter of this year, said Roongrote Rangsiyopash, President and CEO of Siam Cement Group, a Thai industrial conglomerate. "The U.S.-China spat raises uncertainty of our trade partners' importing policies and that cut our exports."

The situation is unlikely to improve in the coming months.

"With growth in the U.S. and China likely to ease over the coming quarters, external demand for Thai exports is set to weaken," according to economists at Capital Economics. "An escalation in the U.S.-China trade war would further weigh on demand by hitting Thailand's exports of intermediate goods to China."

Indonesia's exports increased at a slower pace in the third-quarter, pulling down growth in the region's largest economy to 5.17% from 5.27%. Shipments from Malaysia declined 0.8%, slowing the nation's expansion by 10 basis points to 4.4%.

Business operators are concerned about the economic outlook, and the region's major banks are bracing for lower loan growth.

"[The trade war] has caused very strong short-term uncertainty during the whole year and this is likely to stay," A Shekhar, chief operating officer at Singapore-based trading firm Olam International, said Nov. 14 at a results briefing after the company's net profit dropped 14% in the July-September quarter.

Samuel Tsien, CEO of Singapore's Oversea-Chinese Banking Corp. -- the second largest bank in the region by asset size -- sees trade tensions being reflected in the economy next year. "As a result of that, the strong loan growth we have experienced this year is likely to come down slightly for 2019," he said.

Leading economic indicators are signaling a further decline in exports. An index for new export orders in October were the lowest since December 2016, according to the Nikkei Purchasing Managers' Index for Association of Southeast Asian Nations, which covers manufacturers in seven major countries in the region.

Economies are also being hurt by higher prices stemming from currencies sliding against the dollar. In the Philippines, the central bank is steadily raising rates to combat inflation (6.7% in October) and households are becoming wary of spending.

But not the all economies in the region were hit in the last quarter.

Vietnam saw 6.88% growth, up from 6.73% the previous quarter on the back of steady production of smartphone components. The country is seen benefiting from the trade tensions as manufacturers shift production from China to the neighboring Southeast Asian state.

"I think the overall trend of softer growth in the second half of this year compared to the first half will remain intact," Vishnu Varathan, a Singapore-based economist at Mizuho Bank, told the Nikkei Asian Review, citing weaker trade-related figures and the lagged effect of higher oil prices in September and October.

Combined with higher interest rates, this would affect domestic consumption and investment, Varathan said, adding that "we don't want to be overly pessimistic. It's not that growth is coming crashing down."

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