INSUBCONTINENT EXCLUSIVE:
in most Asian countries last month as an escalating trade war between Washington and Beijing raised fears of a global economic downturn and
heaped pressure on policymakers in the region and beyond to roll out more stimulus.Such growth indicators are likely to deteriorate further
in coming months as higher trade tariffs take their toll on global commerce and further dent business and consumer sentiment leading to job
losses and delays in investment decisions.Some economists predict a world recession and a renewed race to the bottom on interest rates if
trade tensions fail to ease at a Group of 20 summit in Osaka, Japan at the end of June, when presidents Donald Trump and Xi Jinping could
meet.In China, Asia's economic heartbeat, the Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) showed modest expansion at
50.2, offering investors some near-term relief after an official gauge on Friday showed contraction.The outlook, however, remained grim as
output growth slipped, factory prices stalled and businesses were the least optimistic on production since the survey series began in April
2012.PMIs were below the 50-point mark separating contraction from expansion in Japan, South Korea, Malaysia and Taiwan, came below
expectations in Vietnam and improved slightly in the Philippines."The additional shock from the escalated trade tensions is not going to be
good for global trade and if demand in the US, China and Europe continues to soften, which is very likely, it will bode ill for Asia as a
whole," said Aidan Yao, senior emerging markets economist at AXA Investment Managers."In terms of the monetary policy response, almost
everywhere the race is going to be to the downside."Central banks in Australia and India are expected to cut rates this week, with others
around the world seen following suit in coming weeks and months
HSBC economist Jingyang Chen said the PMI figures could mean "Beijing will double down on easing for the private corporate sector."Euro zone
activity is expected to shrink as well, while US manufacturing is expected to grow steadily, although economists expect the global malaise
to eventually feed back into the US economy
Fed funds rate futures are now almost fully pricing in a rate cut by September, with about 50 per cent chance of a move by July 30-31.JP
Morgan expects the Federal Reserve to cut rates twice this year, a major change from its previous forecast that rates will stay on hold
until the end of 2020.Diverted trade flowsIn India, where growth depends largely on domestic demand, the manufacturing sector expanded at
its quickest pace in three months, with sentiment boosted by a dramatic election win by Prime Minister Narendra Modi
But further economic reforms will be crucial, as highlighted by Friday's data showing the economy growing at its slowest pace in more than
four years in January-March.The expansion in Philippines reflects strong domestic demand and less reliance on trade, while for Vietnam it is
a reflection of a diversion of business and trade flows due to the tariffs.A Societe Generale analysis shows that in industries affected by
the implemented tariffs -- such as capital goods and some electronics -- Germany, Mexico, South Korea and Taiwan have each won more US
business.Vietnam has been the biggest beneficiary in industries where tariffs are a threat, such as smartphones, and is also seeing
investment from companies moving production out of China."Southeast Asian countries, especially Vietnam and Thailand, are often cited as the
top choices, and indeed they look ready," Societe Generale analysts said in a Friday note.Ominously, South Korean exports - seen as a
bellwether of world growth - fell 9.4 per cent in May, worse than a median forecast for a 5.6 per cent decline, data released on Saturday
showed.Recession fearsThe trade conflict between China and the United States suddenly escalated last month when President Trump raised
tariffs on hundreds of billions of Chinese imports to 25 per cent from 10 per cent and threatened levies on all Chinese goods.If that were
to happen, and China were to retaliate, "we could end up in a (global) recession in three quarters," says Chetan Ahya, global head of
economics at Morgan Stanley.Washington's new tariff threats against Mexico last week also contributed to global recession fears, with
stock markets tumbling around the world
The 10-year US Treasuries yield fell to 2.121 per cent, a nadir last seen in September 2017.Over the weekend tensions flared again between
China and the United States over trade, technology and security.China's Defence Minister Wei Fenghe warned the United States not to meddle
in security disputes over Taiwan and the South China Sea, while acting United States Defence Secretary Patrick Shanahan said Washington
would no longer "tiptoe" around Chinese behaviour in Asia.On Friday, China also threatened to unveil an unprecedented hit-list of
"unreliable" foreign firms, groups and individuals that harm the interests of Chinese companies
That came after Washington last month put Huawei on a blacklist that effectively blocks US firms from doing business with the Chinese
telecoms equipment giant."We take this seriously
It means that the trade war has not only become a technology war but also a broad-based business war
There will be more retaliation actions from China, especially for the technology sector," Iris Pang, Greater China economist at ING, said,
adding that the tensions over Taiwan were a background worry rather than a pressing concern.
