U.S. President Donald Trump's move last week to slap up to $60 billion in tariffs on some Chinese imports has since provoked a warning from Beijing.
SINGAPORE: The macroeconomic environment in Asia-Pacific looks good despite simmering trade tensions between the US and China, said S&P Global Ratings in a report published on Thursday.
In its report “Apac economic snapshots for June 2018”, it said escalating trade tensions between China and the US dominate the headlines, adding to worries about a faster-than-desired slowdown in growth.
The rating agency said activity indicators in China slowed further in May as fixed asset investment and retail sales growth declined more than expected.
Loan growth remained fast, but that reflected off-balance sheet items returning to the balance sheet.
Export growth rebounded and the trade surplus receded to about US$25bil. The People's Bank of China held rates steady following the US Federal Reserve's interest rate hike in mid-June.
"Trade risks remain front and centre as the US launched a new round of tariffs against China, as well as Europe and Canada," said Paul Gruenwald, S&P Global Ratings' chief economist.
"The objectives of US trade policy remain unclear to us, given the alternating focus on bilateral trade balances and broader investment and intellectual property objectives."
Growth in Australia jumped to a 4% annualised rate in Q1 (double that of the previous quarter), reflecting a broad contribution across all expenditure components.
“Private investment and exports were the biggest swing factors, with the former finally lining up with the strong sentiment indicators we have observed for some time.
“The Reserve Bank of Australia held rates steady at the record low of 1.50% despite an upward revision of the US Fed's rate path,” it said.
GDP growth in India over January-March reached its highest in two years at 7.7% year on year, encouragingly led by private investment.
However, economic indicators point to slower growth ahead. Industrial production growth has fallen in the past two months, and the Purchasing Managers Indices are heading lower.
S&P Said the picture is complicated by global capital market volatility and rising oil prices. The Reserve Bank of India raised rates by 25 basis points at its last meeting.
High frequency indicators in Japan suggest that weakness in domestic demand has persisted into the second quarter, while retail sales momentum was flat.
On the other hand, industrial production momentum picked up and manufacturing Purchasing Managers Indices remain above 50, although they appear to have peaked.
Consistent with the weaker macro story, inflation has flattened out in recent months. The bright spot is double-digit export growth.
"The consumption story in Japan is puzzling with real household spending falling at the same time as employee compensation looks stronger," Gruenwald said.
"The consumption tax hike in 2019 will hopefully be contingent on the 2% inflation target being met."
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