Political risk back on the agenda

Despite the poor global outlook, GDP growth across Emerging Asia actually picked up slightly in the second quarter, and our forecast is for a further gradual recovery over the remainder of the year and into 2020. One of the key risks facing the region’s economies over the coming months is the deteriorating political outlook in many countries. The worsening political crisis is taking a heavy toll on Hong Kong’s economy, and we expect the territory to fall into recession later this year. Meanwhile, Korea’s decision to scrap an intelligence-sharing deal with Japan suggests an improvement in ties between the two countries remains some way off. We think the trade spat between the two countries is likely to cause short-term disruption to Korea’s economy. Meanwhile, even if the worsening situation in Kashmir doesn’t lead to a war between India and Pakistan, there is a risk that the uncertainty causes capital outflows from Pakistan to pick up, prompting the central bank to tighten monetary policy. Finally, China’s decision to stop issuing travel permits for individual leisure trips to Taiwan is likely to lead to a sharp fall in the number of Chinese tourists visiting the country, which is likely to knock around 0.1-0.2% from Taiwan’s GDP.