Asia-Pacific's growth momentum continues to remain strong despite U.S.-China trade tensions

Asia-Pacific's macroeconomic growth momentum remains strong despite further trade tensions between the U.S. and China, according to the latest research report from S&P Global Ratings, titled "APAC Economic Snapshots--July 2018".

However, the key risk for the region's economic growth and welfare stems from the ongoing global trade tensions. The U.S. continues to expand the tariff net on China and other trading partners, who would then retaliate against U.S. trade measures.

China's second-quarter GDP growth was unchanged at 6.7 percent y/y despite evidence of steady deleveraging of the corporate sector and the rumblings of an intensifying trade war with the U.S. The composition of growth was unchanged from the first quarter with consumption contributing nearly 80 percent. This means China is set to meet the 6.5 percent growth target for the year barring an unlikely sharp slowdown in growth in the second half of the year.

Economic data from India continue to be positive as well. The purchasing manager indices are above the 50-point threshold mark and trending upward, suggesting a broad-based and strengthening upturn. Credit growth is also accelerating.

Trade growth looks robust, but higher oil prices are hurting the overall external balance. Rising oil prices are also pushing inflation higher. The rupee has stabilized in recent weeks, although trade issues and higher U.S. interest rate could again create outward capital flow pressure.

"While India remains vulnerable to capital outflow pressures arising from higher U.S. interest rates, capital flight risks this year are more moderate compared with 2013, when markets globally responded sharply to the U.S. Fed's slower quantitative easing," said Paul Gruenwald, Chief Economist, S&P Global Ratings.

Meanwhile, the latest batch of economic data from Japan was also positive, particularly on the investment front. The quarterly Tankan survey showed that business sentiment  remained high, and that the gap between large and small firms was narrowing.