A grim gathering of global economic decision makers last week had a sense of foreboding about tough times ahead even as the US asserted itself on a wide range of issues, Taimur Baig, Chief Economist at DBS, said.
"After attending the annual meetings of International Monetary Fund and the World Bank in Washington DC over the last few days, my overwhelming takeaway is one of US dominance,” Baig said in a note.
“The US society may have internal chasms, and some of its political institutions and processes may have weakened in recent years, but as far as the rest of the world is concerned, US monetary and financial market policy, US demand, US industrial policy, and US sanctions loom above just about all other considerations.”
Policy makers of the world’s largest economy are supplying an array of messages to their counterparts, asking them to be prepared to deal with tighter dollar liquidity, more restrictions on doing business with China, more support for building in the US, and more industrial policy aimed at supporting American firms.
“This is an inward looking, competition averse, resiliency focused America, and there is virtually no difference between Democrats and Republicans on these matters,” the economist said.
What this means for firms and governments in Asia? Navigating trade and commerce and foreign policy with such an assertive US will be challenging, to say the least, Baig said.
US had led from the front in helping Ukraine in its war with Russia and has been vocal against a China that wants to claim pole position in geopolitics.
Financial markets globally have been whipsawed by sharp rate hikes by the US central bank, which has made dollar costlier, and forced other central banks to follow suit. Eurozone is likely to tip into a recession due to the energy price shock caused by the war.
Meanwhile, the IMF-World Bank meetings on the outlook for China expressed little confidence, Baig said.
"Between zero Covid, property market distress, tech regulation, constant pushback by the US, China’s challenges are many. Unlike the aftermath of the global financial virus, when China held up global demand with a massive stimulus programme, no one is holding their breath for a repeat this time," he added.
However, emerging markets like India are faring better but face uncertainties.
“It was clear from body language of the major emerging markets’ policy makers that they don’t feel that helpless,” Baig said.
While countries like India, Mexico, and Vietnam are benefiting from the China plus one strategy, commodity exporters like Brazil and Indonesia are enjoying favourable terms of trade, and many are in the early phase of post-pandemic economic reopening, he said.
Moreover, reserves have been built and debt burdens appear manageable, the economist added.
India is expected to be the fastest growing major economy this year even as projections have been slashed in recent weeks.
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