Sino-U.S. trade war clouds growth outlook for East Asia: think-tank

MANILA (Reuters) - Sino-U.S. trade tensions could slow growth in East Asia this year and next but strong domestic demand and growing intra-regional trade should keep the region’s underlying prospects solid, an economic think-tank said on Wednesday.

After projected 5.3 percent growth in 2018, the region’s economies are expected to expand at a slower pace of 5.1 percent in 2019 and 5.0 percent in 2020, the ASEAN+3 Macroeconomic Research Office (AMRO) said in a report.

The region includes China, South Korea, Japan and the 10 countries in the Association of South East Asian Nations.

“The region will undoubtedly be tested amid growing headwinds from slowing global trade. Uncertainties surrounding trade remain high, and the risk of further escalation in trade tensions frictions cannot be discounted”, according to the ASEAN+3 Regional Economic Outlook 2019 report.

Growth in China is forecast to cool further this year, with the world’s second-largest economy seen expanding 6.3 percent, down from 6.6 percent last year, the report said. Growth in 2020 is expected to dip again to 6.2 percent.

China has a 6.0-6.5 percent growth goal this year.

Washington and China are working to hammer out a deal to ease their tit-for-tat tariffs dispute, which have cost the world’s two largest economies billions of dollars, roiled markets and disrupted manufacturing and supply chains.

The U.S. government is pressing for an end to practices and policies it argues have given Chinese firms unfair advantages, including subsidizing of industry, limits on access for foreign companies and alleged theft of intellectual property.

“There is little room for complacency on the policy front, given that downside risks have become more pronounced”, AMRO said as it called on authorities to be ready to “recalibrate” monetary and fiscal policies to support growth and preserve financial stability.

Given that inflationary pressures are relatively subdued, AMRO said policymakers have some room for maneuver.

Headline inflation in the region is forecast at 2.1 percent this year, from an estimated 2.0 percent last year, and ease to 1.9 percent in 2020, AMRO said.

AMRO said the region could lose 0.4 percentage points of growth over a two-year period if its adverse scenario - both the U.S. and China impose tariffs of 25 percent on all imports between the two countries - materializes.

AMRO was established in Singapore in April 2011 as a surveillance unit to monitor economies in the region and granted status by ASEAN+3 members as an international organization in 2016.

It conducts macroeconomic surveillance and supports the implementation of a multi-billion dollar regional currency swap arrangement called the Chiang Mai Initiative Multilateralization (CMIM).

Reporting by Karen Lema; Editing by Kim Coghill