Amid increasing global uncertainties, the ASEAN+3 Macroeconomic Research Office (AMRO) has maintained its growth forecast for ASEAN+3 at 5.4 percent for 2018 and shaved the forecast for 2019 to 5.1 percent, AMRO Director Dr Junhong Chang emphasized in her opening remarks at a roundtable on “Scaling Up and Leveraging Regional Surveillance Capacity” co-hosted by AMRO and Boston University.  She added that AMRO is closely monitoring developments for downside risks that may shift its forecast.  Dr Chang also highlighted two main risks facing the region: the escalating US-China trade tension and spillovers to other regional economies, and the tighter financial conditions.

On the trade tension, AMRO’s estimates consistently show that both the U.S. and China would lose in a trade war. With the escalation in the past three months, its preliminary estimates for a worst-case scenario are that the losses on both sides could be three times higher than the previous estimates of 0.2 to 0.4 percentage points off both U.S. and China’s economic growth announced in May. As for the trade and investment diversion effects to some of the ASEAN countries, AMRO observes that these effects take time to materialize and in the meantime, the impact on the regional economies through the regional supply chain and through rising policy uncertainty, will be significant and negative.

On the second risk of tighter financial conditions due to the monetary policy normalization process of the major economies, AMRO views that the East Asia region is now in a better position to shield themselves against the large scale capital reversals.  Emerging market valuations are not as high as they were five years ago. Emerging markets in our region have wisely taken advantage of the strong capital inflows during the past decade to build up reserve buffers, and implemented macro-prudential policies to contain the rise in financial vulnerabilities. In recent months, policymakers in our region have also demonstrated clearly through their pre-emptive, frontloaded and ahead-of-the-curve policy measures that they clearly prioritize financial stability in these uncertain times. This has paid dividends as investors differentiated our region from other emerging market regions this year during episodes of financial market turbulence.  Nevertheless, escalating trade tensions could interact with tightening global financial conditions to amplify external shocks to our region, and the region has to remain vigilant.

In conclusion, Dr Chang urged the policymakers gathering at the Annual Meeting of the International Monetary and the World Bank Group in Bali next week to steer the global economy in the right direction, and reaffirmed AMRO’s commitment in providing advice and support to authorities in East Asia.

Read Dr Junhong Chang’s full speech