Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
Under the Banyan Tree - Taking the rough with the smooth
0 Plays2 seconds ago
Amid a raft of GDP forecast downgrades, Fred Neumann rallies fellow economists Yun Liu, Jin Choi and Jun Takazawa for an update on the fallout from US tariffs, as well as a reminder of the macro positives that still exist in Asia.
Disclaimer: https://www.research.hsbc.com/R/101/rqh7SQf. Stay connected and access free to view reports and videos from HSBC Global Research follow us on LinkedIn https://www.linkedin.com/feed/hashtag/hsbcresearch/or click here: https://www.gbm.hsbc.com/insights/global-research.
Recommended
Transcript
Introduction to HSBC Global Viewpoint
00:00:02
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes. Thanks for listening, and now onto today's show.
00:00:24
Speaker
This is a podcast from HSBC Global Research, available on Apple Podcasts and Spotify. However you're listening, analyst notifications, disclosures and disclaimers must be viewed on the link attached to your media player.
Focus on Asian Markets: 'Under the Banyan Tree'
00:00:45
Speaker
Welcome to Under the Banyan Tree, where we put Asian markets and economics in context. I'm your host, Fred Newman, at HSBC's Banyan Tree headquarters. As the global effects of US tariffs begin to take hold, we're looking at key Asian economists in a new light.
00:01:00
Speaker
Today, we'll bring you the views of ASEAN economist Yun Liu, who looks at Vietnam, Singapore, Malaysia, Jin Choi, our Korean-Taiwan economist, and Asian economist Jun Takazawa, who's here to talk specifically about Japan.
00:01:13
Speaker
Much to discuss, so let's get started from HSBC Global Research you're listening to Under the Banyan Tree.
Impact of US Tariffs on Asian Economies
00:01:26
Speaker
Well, since the tariff announcements, we and our colleagues around the world have been rethinking our economic forecast. GDP numbers for 2025 have actually been revised down, and we're going to highlight a few of them to you. For example, in Vietnam, we've lowered our growth forecast from 6.5 to 5.2 percent.
00:01:42
Speaker
In Taiwan, another very exposed economy, we've revised downwards the GDP forecast from 3.1 2.8 percent. And we only see about 0.7% growth in Japan and Korea this year. Both revised down from above the 1% mark. So pretty meaningful downward revisions, although it's not the end of the world. and It's not a recession.
00:02:02
Speaker
Let's talk about some of these downward revisions. Southeast Asia, yun you cover Vietnam, you cover Malaysia, you cover Singapore. And some of these forecasts have been tweaked lower. Why is that? Why is now growth lower just because of the U.S. tariffs? How does it actually impact these economies in Southeast Asia?
00:02:20
Speaker
Yeah, I mean, the tariff is definitely the main drag here. um But I mean, it actually goes through two mechanisms of transmission. So in terms of trade, um for now, you know, we're still not really entirely clear where the tariff direction will go even after the 90-day tariff pause.
00:02:36
Speaker
um But I think the other thing, especially for all these export-oriented economies in Southeast Asia that have benefited so much from ah the FDI relocation, but the tariffs very much put investors on a very cautious footing.
Vietnam and Taiwan: Navigating Tariff Uncertainty
00:02:50
Speaker
So Vietnam is a very good example here. um It has received a lot of investment. um Quite broad-based, but in recent ah years, we have seen a large portion coming from the greater China region.
00:03:02
Speaker
um So I think this lack of tariff clarity will very much impact ah Vietnam through part. That's interesting. So it's not the exports themselves necessarily, but it's really um the secondary channel investment that you highlighted is important. and it's It's the uncertainty around what future tariff policy will be, which is so detrimental to China.
00:03:22
Speaker
Investment decisions, understandable. Businesses probably hold back on expanding their factories. Exactly. Yes. Now, Jin, I want to come to you. Now, you cover Korea and Taiwan and one of these economies, Korea is quite a bit weaker than than Taiwan. why Why is one better than the other? Why would Taiwan kind of perform better than than Korea?
00:03:44
Speaker
ah Thank you, Fred. So, um yeah, I've been um highlighting the fact that even though the two economies tend to be viewed as similar economies in terms of their um tech-driven exports, the export basket, if you look at the two economies, they're very different. on Taiwan's exports have been riding this structural demand for AI quite strongly. So when you say that, you you mean AI hardware, right? So the it's a semiconductors that go into artificial intelligence, servers, and so what that's what Taiwan's been riding on?
00:04:14
Speaker
Correct, correct. So yes, the so called the tech exports account for more than 70% of Taiwan's exports. Meanwhile, yes, um Korea's exporters have been um enjoying some boost in terms of the AI related demand as well.
00:04:28
Speaker
But then if you look at the semiconductors, at its height is only 20% of overall exports. so While if you look at the other parts of the Korea's exports, over the last year's um export recovery, actually hasn't been going anywhere, it's been actually just moving sideways.
Korea and Japan: Export Challenges
00:04:43
Speaker
Trevor Burrus, That's interesting. so you have really two very high-tech based economies. But what you're saying is that Taiwan has a much larger exposure to AI and semiconductors particular, whereas Korea also exports cars, petrochemicals, ships, a lot of other stuff that hasn't done as well. And this will be impacted more by tariffs? sure
00:05:06
Speaker
Yes, exactly. So yeah yeah please don't get me wrong. Of course, um there's a lot of uncertainty and we'll have to hear how the negotiation between these economies and the U.S., s especially on the sectoral tariffs on autos and semiconductors pan out.
00:05:20
Speaker
Having said that, though, the main reason i would like to highlight for this um downgrade is that, especially for Korea, is that its exports is very susceptible to global demand, which we are now expecting to slow across the boards. So that that's an indirect impact, right? So it's not just a terrorist per se but it's just the fact that the global economy might slow and therefore that impacts demand for exports as well.
00:05:42
Speaker
June, let me bring you in here. You also covered the Japanese economy. Now and in some ways, the Japanese economy shares some features with the Korean economy if we think about high-tech exports, car exports for example.
00:05:58
Speaker
I guess a lot of the goods are similar. Not all of them, but there are some similarities there. But what's the impact of to be in Japan's exporters here? ah Thanks, Fred. So in terms of Japan, I think let's throw out some numbers here.
00:06:10
Speaker
In terms of what Japan exports to the U.S., around 30 percent is comprised of cars. And so certainly when we think about sectoral tariffs, that has ah big downward drag on export momentum for Japan.
00:06:23
Speaker
The other part in terms of the reciprocal tariffs also so impact Japan in the sense that when we think about overall U.S., Japan's exports to the U.S., it does impact comprise about 20%.
00:06:34
Speaker
twenty percent And so that is quite sizable. And so it is going to affect Japanese manufacturers and exporters. And that we've cut our growth forecast for Japan. So the primary reason is kind of the expectation that there'd be lower demand in the US for Japanese goods, partly in result of tariffs, partly because of weaker US growth as well.
00:06:58
Speaker
Exactly, yes. And also so we have to be careful about the indirect effects of this global shock.
Policy Measures in Southeast Asia
00:07:04
Speaker
It's something that I think a lot of people do tend to underestimate. In terms of Japan's other major export goods, if we think about industrial machinery, equipment,
00:07:14
Speaker
heavy duty factory equipment upstream in the supply chain, how other trading partners, trading activities also get affected does weigh down on Japan as well. Which is something that you actually mentioned, right? So as you mentioned that that actually one of the key channels of impact on Southeast Asia is the reduction investment, not just exports, but actually investment. and And so these investment goods come from somewhere and they come often from Korea, Jin, right? ah Korea and and and of course in Japan as well. And so I think what's interesting, what you guys are mentioning is that we shouldn't just think of tariffs impacting just the exports that go from specific economies to the US. We should also think about tariffs.
00:07:54
Speaker
the investment impact, we should think about the global growth impact, all of them to linked, and that sits behind of these downward revision to forecast. Now, Yun, let me come come back to you. So there is a drag here.
00:08:07
Speaker
What can local policymakers do to kind of cushion the impact? Because in many ways, that's kind of out of their hands, right? They can obviously try to negotiate a deal with the United States, get a bit more clarity.
00:08:19
Speaker
But domestically, is there anything you can do to kind of cushion the impact on economic growth? Yeah, I think in some other countries, policymakers are trying to encourage more domestic ah demand to sort of offset some of the external risk here. So, for example, Vietnam, um ah private consumption, probably not because private consumption still requires a a little bit of more recovery. It's still subdued.
00:08:41
Speaker
ah So the best hope here is, you know, encouraging mega infrastructure projects here. And this is a playbook that Vietnam wants. um On the other hand, the other country here I want to ah mention here is Malaysia, who is ah relatively speaking in a ah slightly better position compared to everyone else and in Southeast Asia in terms of this domestic resilience. So private consumption is still quite decent, ah partially also because of the ongoing generous subsidies, public investment. ah The FDI part here, you know, we we put a question here, but I think the public investment here, really Malaysia is witnessing an an investment boom here.
00:09:17
Speaker
um So at least for some economies, they can partially offset some of the tariffs. It's interesting. You mentioned domestic demand, right? You said consumption, maybe yes, a little bit. There's a bit more room. Of course, in Southeast Asia, you have a lot of potential catch-up on consumption structurally. Yes. But Jin, if you think about an economy like Korea, on a domestic side, because of demographic aging for example, would be harder to offset any drag from Mexico. Is that correct or is there something policymakers can do in in Korea?
00:09:50
Speaker
Well, so um getting back to the export discussion, so we know that the impact is likely to be more on broad base, right? um Not just the Korea-U.S. exports. So that means that the room for offsetting that is a little limited from the policymakers' side, meaning that some cyclical response from the police side would be um much more needed at this time.
00:10:09
Speaker
um And would like to stress stress, Fred, that with the exports likely to slow further in this year, it's going to have impact on the the pace of domestic demand recovery, meaning all the more reason for policy support. It's interesting you say that because obviously in economies that are highly export-oriented like Korea, for example,
00:10:29
Speaker
As exports slow, it tends to also then slow down domestic consumption because the two are so interlinked. So um I think you're right to highlight this. And and therefore, there's even more reason for counter-cyclical policies like a fiscal ah stimulus, for example. We should also actually mention that.
00:10:45
Speaker
In China, we have similar problems, right? In China, we are talking about the need for fiscal stimulus um because of the drag on exports. and And there, too, you face the risk that domestic consumption and demand will not be strong enough to offset the drag ah from x um But, Joan, on Japan, there has been some hope coming into this year that actually domestic consumption would be stronger. We see very strong wage growth are coming in There might actually be of tailwind already from fiscal policy.
00:11:18
Speaker
How worried are you about the risk that consumers are pulling back with all the – on the only uncertainty in the global economy with Japanese exporters maybe suffering, is there going to be an impact on the domestic economy in Japan?
00:11:32
Speaker
So I think in terms of the near-term trends, what we've seen in terms of high-frequency consumption data is that it has been holding up steadily. But this is partly because of the fact that high food prices have been weighing down on sentiment.
00:11:48
Speaker
ah But on the other hand, as you just mentioned, you know nominal wage growth prospects have been considerably healthier in recent years. um And so in terms of the domestic demand picture for this year, at the very least,
00:12:00
Speaker
It certainly should be a much better one relative to prior years. Some resilience and on on Japan and and presumably yeah the surge in tourists in Japan doesn't hurt either for domestic activity in general. But I think this is a great time to take a quick break. and And when we come back, I want to shift the conversation
Long-term Growth Outlook in Asia
00:12:18
Speaker
a little bit. It's all so negative when it comes to tariffs and we're downgrading growth, et cetera.
00:12:23
Speaker
Let's talk about some of the more positive aspects about these economies.
00:12:36
Speaker
Okay, welcome back everybody. ah So before the break, we had the discussion about the impact of US tariffs and growth in Asia. And unfortunately, you know we had to shave back our growth forecast for this year, our expectations, because there are direct impacts from lower exports to the US, but also indirect impacts and so forth.
00:12:54
Speaker
But with all the headlines in recent weeks, it's all been so negative and I think sometimes there's too much noise. So, Ewan, let me come to you. There is certainly some headwinds for this year if you think of Vietnam, Malaysia, Singapore.
00:13:08
Speaker
But what makes you optimistic ultimately in the long run? What gets you out of bed in the morning and say, hey – You know, growth is still going to be in the coming years very, very solid in these economies because often, you know, all this noise about tariff terms obscure are some of the good structural trends that going on in these economies.
00:13:26
Speaker
That's right. I think, say, for example, Vietnam, um the long-term fundamentals have not changed. I think there are good reasons to stay. Constructive on some of the factors here. Education is one. If we look at OECD education stats across countries, ah Vietnam's actually the second highest one just after Singapore, which is a DM market.
00:13:46
Speaker
um So I think Vietnam really has been doing quite a lot of in terms of, you know, improving productivity and in terms of ah getting more of the high end of the the investment and climbing up the value chain.
00:13:58
Speaker
Very hardworking population as well. Yeah, and that that would suggest, for example, that some of the secular trends that we've seen in recent years, for example, is that Vietnam, to some extent Malaysia as well, are taking kind of market share from China in certain goods, right? Because they are so competitive and they've actually gained competitiveness vis-à-vis China, which we often tend to forget.
00:14:22
Speaker
um And this is putting the terrorists aside, even just ignoring the terrorists. These are just some of the most competitive economies in certain areas. And and so that competitiveness will not disappear overnight. Exactly.
00:14:35
Speaker
So Southeast Asia, you know we have certainly this competitiveness, Jin. if If you think about just the outlook for for Korea, what are some of the the reasons to be maybe a bit more optimistic? Right. um as ah As being Korean, I cannot risk sounding too pessimistic about my own country.
00:14:51
Speaker
ah So let me um just flip the attention a little bit to the domestic demand recovery story here. Korea's growth recovery um over the past two years has been very much export driven. um And it's no surprise given um the Bank of Korea had to hike its policy rate by 300 basis points in a very short span of time in order to fight um inflation.
00:15:11
Speaker
Now, monetary policy loosening is going on. And let me bring the um ah election story here. Of course, we have a lot of uncertainty regarding the the outcome of the elections. But then I think the election itself allows through the clarity in the in terms of the christian chris political leadership.
00:15:30
Speaker
It allows for the government to make the needed um physical loosening in order to fight the slowing growth, regardless of what the outcome is. Right. Which is a reminder I think we had a lot of political uncertainty of course in Korea and and that contributed to some of the underperformance in recent quarters. And so if that domestic uncertainty kind of fades and we get more clarity then in itself should provide a decent lift even if exports are still struggling with stiff headwinds. So there are some – maybe some positive coming through on a domestic side.
Tourism and Economic Boost in Japan
00:16:02
Speaker
um
00:16:03
Speaker
But Jun, if we turn to Japan, we're already hinted at this. You know, tourism, is that a big driver still? um Yes, I think if there is one bright spot that we can always highlight for Japan in recent years, it has been inbound tourism.
00:16:19
Speaker
We continue to see record monthly arrivals exceeding 3 million. Part of that has been, you know, a weekend story. But I think recently there has been the opening of the World's Expo in Osaka.
00:16:32
Speaker
that should continue to also so support the monthly momentum that we currently see. So you're saying anybody who missed the cherry blossoms this year can still go to Osaka for the expo? Yes, there's many things to do in Japan.
00:16:44
Speaker
But I think that also kind of alludes to another point I want to highlight. And that is that ah when you have these external forces that come into Japan in terms of ah per capita spending increases or pressures in a sense where ah businesses are incentivized to invest in sort of infrastructure, for instance, convenience stores, installing more and more digital cashless terminals.
00:17:07
Speaker
There's many different ways that increased tourism inflows could spill over positively onto the domestic economy. um which Which is something we see not just in Japan but across Asia, right? The continued adoption of technology, China of course leading it, but in Korea as well. We have ah fintech coming in. We have new payment methods. That all improves productivity. So that's a great example of how sometimes these tourism flows spur broader changes in the economy. But and since you mentioned tourism, um Of course, inbound tourism into Japan, very big, but in other countries as well, Vietnam, Malaysia, tourism is very big. Here where we sit in Hong Kong and and um I hear that ah Hong Kong will soon um welcome a big Korean star. Jin, who is that?
00:17:54
Speaker
Well, this is the time I have to make sure that I don't sound too old. but you could You could defer to Yun, who is obviously decades younger. And and and therefore, Yun, who's coming to to hong Kong? G-Dragon is coming. G-Dragon? Who's G-Dragon? G-Dragon is the K-pop king for quite a long time.
00:18:16
Speaker
um Actually dominating. I'm going to say quite a long time. Is he sort of Elvis Presley of K-pop or is younger than that? He is probably about our generation, if I may say, um but very talented. And he just made a comeback this year.
00:18:31
Speaker
And now he's doing his world tour this year. He's going to come to Hong Kong in the summer. Oh, so another yeah big music event in Hong Kong. And you've written about this new emerging industry of concerts
Concert Economics: A Case Study in Hong Kong
00:18:44
Speaker
in Asia. Yeah, exactly. us in on that. Last year, ah we saw concert economics in Singapore. This year, probably ah concert economics in Hong Kong.
00:18:51
Speaker
Oh, there you go. So see, there's not just tariffs. There's also G-Dragon and his concerts. And maybe ah we get the G-Dragon pulling us out of this tariff rut and helping to drive growth on the services and tourism side. So thank you very much, guys. This was very enlightening. I'm sure we'll be back checking in with you because it's an evolving story. But I'll certainly have to wrap up here and get my G-Dragon tickets. So thank you.
00:19:15
Speaker
Thanks, Rad. Thank you very much. Great to be here. So that's a wrap for another week under the Banyan tree. Thanks for joining us and please listen, follow and subscribe. You can find us wherever we get you get your podcasts. Our sister podcasts and macro brief is also available for a global take on the economic story, shaping policy and moving markets around the world.
00:19:33
Speaker
Under Banyan tree is an HSBC global research production. We'll be back again next week.
00:20:06
Speaker
Thank you for joining us at HSBC Global Viewpoint. We hope you enjoyed the discussion. Make sure you're subscribed to stay up to date with new episodes.