Investing.com– Analysts Morgan Stanley (NYSE:) Asia is more vulnerable to a U.S. recession than in the past, with China’s corresponding slowdown giving the region less of an economic cushion.
The broker still sees the fundamentals of the US economy soft landing. But a sharp slowdown, or even the possibility of a recession, presents headwinds for Asian economies.
The prospect of a US recession, in particular, poses “a significant drag” on Asian growth, according to MS, along with a general slowdown in exports. Such a situation is also expected to affect capital expenditure in the region.
According to MS, Japan, Korea and Taiwan are most exposed to a US recession, while China and India have moderate exposure. Australia and Indonesia have the least direct exposure to the country.
Asian economies, with the exception of China, are highly dependent on US exports, and the country’s slowdown could affect this trend. Exports of technology products are an important part of this dependency and can help mitigate the decline in demand in other sectors.
In China, dependence on U.S. exports has decreased in recent years, although it remains relatively high, Ms.
Rate cut, fiscal easing to reduce impact
The Federal Reserve is likely to cut interest rates in the event of a US recession, and any deeper rate cuts will increase the attractiveness of Asian markets.
But any easing measures in Asia are unlikely to provide much support and offset US headwinds.
China, in particular, is expected to have limited availability to offset headwinds from the United States as the country struggles with lingering deflation and falling growth.
“While China has adopted significant stimulus, it is important to see whether these will be supply-side policies or instead aimed at boosting consumption,” MS analysts wrote in a note.
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