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Asia’s economies can fight off trade war

Asia’s economies can fight off trade war

The economies of Southeast Asia, China, Japan and South Korea are expected to remain “resilient” in the face of heightened trade tension and stronger global headwinds, a regional body said.

While growth in the region should ease to 5.1 per cent this year from 5.3 per cent in 2018, robust consumption and trade between the economies will be supportive, the Asean+3 Macroeconomic Research Office, known as AMRO, said in a report released on Wednesday. The biggest risks remain an escalation of trade tensions, a sharper global slowdown and financial market volatility.

AMRO was created as a monitoring unit and adviser to the Chiang Mai Initiative, an agreement forged in the wake of the Asian financial crisis to pool resources to help countries facing liquidity problems.

The economies were in a good position to weather headwinds to external demand, given that most “have adequate reserves and fiscal buffers,” AMRO said. It saw decent growth, inflation largely within range, and credit cycles “mostly in either the recovery or slowing phase” and close to trend.

The region’s current policy stances were deemed “appropriate,” though AMRO warned that central bankers should be ready to adjust policy toward promoting growth while maintaining financial stability, according to the report.

AMRO also saw a rising middle class, rapid urbanisation and prospects for digitalisation as further evidence of the region’s sound fundamentals. The organisation encouraged further building of productive capacity and connectivity and a deepening of domestic markets.

Citing the need to bolster domestic savings, stockpile foreign reserves, and develop human capital and governance, AMRO also encouraged the leveraging of regional tools such as the Chiang Mai Initiative.