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Can Chinese demand cushion blow of US recession on Asian economies?

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Jerome Powell, chairman of the US Federal Reserve, speaks during a news conference following a Federal Open Market Committee meeting in Washington DC on June 15. EPA-Yonhap
Jerome Powell, chairman of the US Federal Reserve, speaks during a news conference following a Federal Open Market Committee meeting in Washington DC on June 15. EPA-Yonhap

China is expected to pick up steam in coming months: HSBC economist

By Kim Bo-eun

HONG KONG ― Record-high inflation, aggressive rate hikes and stock market chaos have stoked concern that the U.S. 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 U.S.

China has a significantly lower rate of inflation than the U.S. and "prudent" economic policy during the first two years of the pandemic has given Beijing room to roll out targeted support for the economy.

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 neighboring economies than the U.S., 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 U.S. and Europe."

People walk in downtown Shanghai on June 1, after the city reopened following a two-month lockdown. Yonhap
People walk in downtown Shanghai on June 1, after the city reopened following a two-month lockdown. Yonhap

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 percent 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 unfavorable for a while."

The Organization for Economic Cooperation and Development last month cut its growth estimate for South Korea for this year to 2.7 percent from the 3.0 percent in December.

Export cargo is loaded in Korea's southern port city of Busan on Jan. 1. Yonhap
Export cargo is loaded in Korea's southern port city of Busan on Jan. 1. Yonhap

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.

"In the event a U.S. recession occurs, we expect the impacts to hit trade-dependent countries in Asia the hardest, which will include Hong Kong and Singapore as well as South Korea [and] Taiwan," she 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."

Though China has taken steps to ease restrictions, President Xi Jinping has said the country will stick to its hardline zero-COVID policy despite risks to the economy.

"China could play a role in buffering the impact of a possible U.S. 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.


Kim Bo-eun bkim@koreatimes.co.kr


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