Tariff risk drives another round of Asia forecast downgrades

Mint

3 days ago

SINGAPORE—A fresh wave of growth forecasts for Asia highlights the threat posed by tariffs to the region, even as trade deals gather pace.
The Asian Development Bank and multilateral organization Asean+3 Macroeconomic Research Office, or Amro, both lowered growth projections for major Asian economies, citing the impact of U.S. trade policy.
Asia-Pacific has weathered a tough external environment this year, 'but the economic outlook has weakened amid intensifying risks and global uncertainty," said ADB chief economist Albert Park.
Strong domestic demand and export front-loading supported regional economies in the first half of the year, but that momentum is expected to weaken, the Philippines-based multilateral bank said in a report Wednesday.
The ADB now projects gross domestic product growth for developing Asia at 4.7%, down from April's forecast of 4.9% and the 5.1% expansion recorded in 2024.
Next year, growth in developing Asia, which comprises 46 ADB members including China, South Korea and India, is forecast to slow further to 4.6%.
Southeast Asia will be hit hardest by worsening trade conditions and persistent uncertainty, the ADB warned.
Although several Southeast Asian nations have negotiated for lower tariffs, analysts say that won't offset the blow of high trade barriers, economic fragmentation and policy shocks.
Growth in Vietnam, the first to get a deal, is still expected to slow through 2025 and 2026 as U.S. tariffs dampen export demand. The ADB cut Vietnam's GDP growth projections to 6.3% in 2025 and 6.0% in 2026, from 6.6% and 6.5%, respectively.
Those who have yet to reach a compromise, such as South Korea or Taiwan, face significant 'reciprocal" tariffs on U.S.-bound exports if no agreement is reached by Aug. 1. The temporary trade truce between the U.S. and China is also set to expire in August.
'A renewed imposition of the U.S. reciprocal tariffs or a re-escalation in US-PRC [People's Republic of China] trade tensions could reduce regional growth by 0.5 to 1.4 percentage points," the ADB said.
A faster deterioration in China's property market also poses a risk to regional growth, it added.
China's latest batch of property data showed the sector has yet to recover, with housing prices and investment still subdued as officials struggle to revive demand.
Beijing's other stimulus efforts, including for consumption, helped the economy grow in the first half of the year, but the outlook for the rest of 2025 remains challenging, the ADB said.
For now, it maintains its growth forecasts for China at 4.7% this year and 4.3% in 2026. Beijing has a target of 5% for this year.
Tariff pressures also led ADB to trim growth views for India to 6.5% and 6.7% in 2025 and 2026, respectively. South Korea's forecast was lowered to 0.8% this year and 1.6% the next year.
Amro echoed concerns about a continued lack of clarity on Trump trade policy.
'Tariffs will likely reduce U.S. demand, increase investment uncertainty and dampen consumer confidence," the multilateral organization said.
The resulting global slowdown will further impact ASEAN+3, which includes the 10 Association of Southeast Asian Nations members, plus China, Japan, and South Korea. Amro expects regional growth to slow to 3.8% this year and 3.6% next year.
Under a scenario where U.S. tariffs on China revert to April 2 levels, BRICS-aligned economies face an additional 10% duty, and previously exempt goods incur a 25% levy, growth could drop below 3% next year, Amro estimates.
Non-tariff protectionist measures, such as stricter investment regulations, could magnify the impact, it added.