Besides China, US and Europe still matter for growth in Asia

If we look just at which economies dominate global growth, back in 2000, the answer was clearly the United States, and particularly the American consumer. The US economy accounted for a quarter of global GDP growth, while China accounted for just 7 per cent, despite its rapidly growing economy.
However, by 2014, the US had fallen to 16 per cent, while China had shot up to 30 per cent – despite its slowdown. China dominates because its economic scale has increased, while its pace of growth remains well above those of the other major economies.
But does this large share of growth actually translate into being the most important driver in the Asia region?

US and euro area still
big swing factors
At Standard Chartered, we analysed the impact of four major economies – mainland China, the US, the euro area and Japan – on 10 Asia-Pacific economies – Australia, Hong Kong, India, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand.
While China comes out as the biggest driver of economic activity, it is not by as wide a margin as you might think. We took two approaches to reach this conclusion.
First, we went to an alternative source to tell us who is really buying the goods exported by countries in Asia. We used data from the Organisation for Economic Cooperation and Development, which calculates exports by ultimate destination, that is, who is really buying the goods.
This approach showed the relative importance of the US and the euro area increasing. This is likely due to the evolution of supply chains in the last 15 years, where goods go to various intermediate stops like China before ending up at their final destination.
For seven of the economies – Australia, Hong Kong, Malaysia, Singapore, South Korea, Taiwan and Thailand – the shares of their exports for end use in mainland China are lower than official direct-export data indices.
Second, we calculated how sensitivities to growth in the major economies have changed in the past decade. We estimated rolling betas for growth in each Asian country, explained by growth in each of the majors. We found that since 2011, China had risen in influence.
We then modelled the reaction of each of the countries in the region to a 1-percentage-point shock to growth in gross domestic product in each of the major economies.
For the Asia ex-China and Japan region, the results were as follows -– US impact 0.28 percentage point, China 0.24 point, euro area 0.35 point and Japan 0.11 point.
This means that if all four major economies accelerated their growth by 1 percentage point, then the euro area would have the most impact on Asia. However, momentum requires both mass and velocity, something that China has above the others.
So what does all this mean for growth in 2016? We actually expect the bigger change in growth rates to come from the US and Europe.
Our growth forecasts for 2016 are the US slowing, the euro area accelerating, Japan mildly accelerating and China remaining steady at 6.8 per cent.
While the bigger swing factors in our view come from the West in 2016, the overall impact on Asia’s growth will likely be negligible. Our 2016 growth forecasts indicate that Singapore, Taiwan, Hong Kong and Malaysia will be the most negatively affected by demand from the majors in 2016.
While the economies of the US and the euro area are larger than China, China’s fast growth, combined with its bigger scale, means its impact on Asia is greater. Today, China is growing three times as fast as the US and the euro area.
If all three economies saw a halving in their growth rates, the biggest impact by far would come from China.

David Mann is chief economist for Asia at Standard Chartered Bank.