Date
10 December 2016
Paul Gruenwald (right) says higher interest rates will add pressure to property prices. Jean-Michel Six (left) says a collapse in property markets is unlikely as many central banks have launched micro-prudential tools. Photo: EJ Insight
Paul Gruenwald (right) says higher interest rates will add pressure to property prices. Jean-Michel Six (left) says a collapse in property markets is unlikely as many central banks have launched micro-prudential tools. Photo: EJ Insight

Asian economies to benefit if Trump boosts US spending: S&P

Asian economies will benefit if US President-elect Donald Trump adopts the Keynesian economic theory to boost spending in the United States, instead of triggering a trade war with China, according to S&P Global.

“What is apparently happening is a ‘Keynesian Trump’, which is almost a repeat of the 1980s. Trump would have to run the US economy a bit hot with big fiscal spending, tax cuts while pushing up fiscal deficit with likely spillover into a trade deficit,” Paul Gruenwald, chief economist (Asia-Pacific) at S&P Global Ratings, said in a media briefing in Hong Kong on Wednesday.

If the US is growing faster and importing more, global trade will benefit, especially trade-dependent Asian countries, Gruenwald said.

However, higher US rates and a strengthening US dollar will trigger capital outflow from emerging countries and have a negative impact on those who need to do financing and borrowing, he added.

Property prices in Asia

Gruenwald said higher US interest rates will put downward pressure on property prices in Asia if central banks in the region follow the Fed’s lead.

“I am not saying that property prices might not go down. But if some people try to compare what is going on in Asia right now with the situation in US in 2006 to 2007, they are not really comparable.”

Markets will do their job to correct overheating sectors unless there is a huge distortion like the US property market a decade ago, when regulations are loose and people could borrow mortgage with no income and zero down-payment, he said.

Over the past decade, central banks around the world have introduced different macro-prudential tools to rein in property prices, such as the application of loan-to-value (LTV) ratios, so a sudden collapse of property markets has become less likely to happen, Jean-Michel Six, chief economist (Europe, the Middle East and Africa) at S&P Global, said in the same briefing.

China’s service trade deficit

Another scenario is a “Campaign Trump”, with the president imposing a 45 percent tariff on Chinese goods and labelling China as a currency manipulator, Gruenwald said.

“If the world’s two biggest economies are in a trade and investment war, it is not a good scenario,” he said. “We have so far not heard from Trump that he will impose a trade tariff on China … It’s a good thing.”

Gruenwald said even if there is no Keynesian Trump and the US economy continues to struggle for a longer period, Asian economies will not be a terrible shape.

He said although Japan will see no growth, China and India will still maintain their 6 to 8 percent GDP growth, making Asia a growth driver for the world.

In recent years, China has become a service trade deficit country, benefiting some Asia-Pacific countries like Australia, which have seen their goods exports surpassed by service exports, Gruenwald said.

“In future, China is going to import more and more services and education from the rest of the world as it can’t produce these things onshore. China’s rebalancing is in some ways redistributing global trade away from commodity to services,” he said.

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JP/CG

Chief reporter at EJ Insight

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