Could Chinese demand soften the blow of a US recession on Hong Kong, South Korea and Singapore?
- Analysts say even a marginal acceleration of Chinese demand could cushion the growth drag on Asia from slower shipments from the US
- But risks lie ahead for China’s economy, including from resurgent coronavirus outbreaks and the country’s rigid stance towards containing them
Record-high inflation, aggressive rate hikes and stock market chaos have stoked concern that the US economy could slip into recession, causing a growth slump in other parts of the world.
In Asia, eyes are also fixed on China, with some wondering whether the world’s No 2 economy will be able to act as a buffer against a potential contraction in the United States.
While numerous headwinds remain, the easing of coronavirus restrictions after months of lockdowns in major cities like Shanghai, coupled with new stimulus measures, have buoyed hopes among some analysts that the worst might be over.
“China is likely past its growth trough and is expected to pick up steam in the coming months,” said Frederic Neumann, HSBC co-head of global research Asia.
“On average, China consumes more goods from neighbouring economies than the US, so even a marginal acceleration of Chinese demand should go a long way to cushion the growth drag on Asia from slower shipments to other parts of the world, especially the US and Europe.”
In the meantime, the impact of inflation will blunt the strength of recovery in household consumption and dampen private investment across Asia, said Syetarn Hansakul, Asia analyst at The Economist Intelligence Unit.
“In Japan, where the reliance on imports is also high, we see the growth prospect considerably weaker,” she said.
Industrial production in Japan in May recorded its biggest decline in two years – falling 7.2 per cent from the previous month.
Dutch bank ING said the result was much lower than the market consensus and China’s lockdowns could have been a factor. Weaker-than-expected industrial production will restrict Japan’s second quarter rebound, it added.
ING also projected a gloomy outlook in the months ahead for South Korea.
“We think businesses appear to be getting more concerned about the weakening of household purchasing power due to rising inflation and interest rates,” the Dutch bank said in a note on Thursday.
“Also, the export outlook has dropped to its lowest level since March 2021, which suggests that external conditions will be unfavourable for a while.”
The Organisation for Economic Cooperation and Development last month cut its growth estimate for South Korea for this year to 2.7 per cent from the 3.0 per cent in December.
The Ukraine war has accentuated the trend of rising inflation, which will have a secondary impact on gross domestic product growth in Asia, Hansakul said.
But she added, “China’s Covid lockdowns have disrupted demand for Asian exports and the functioning of the regional supply chain, which also pulls down our near-term Asian growth projections.”
“China could play a role in buffering the impact of a possible US recession if the effects of its fiscal policies start playing out in the latter half of the year,” said Jun Kwang-woo, chairman of the Institute for Global Economics.
But China’s economic recovery was not guaranteed, he said, given structural problems and risks such as another wave of infections.
Countries like South Korea should diversify trading partners to manage risks, Jun said.