The global economic downturn is growing as production shrinks throughout Asia

HONG KONG (Reuters) – Factory activity contracted in most Asian countries last month as a growing trade war between Washington and Beijing raged the fear of a global economic downturn and put pressure on politicians in the region and beyond to roll out more stimulus.

Such growth indicators are likely to worsen further in the coming months as higher trading rates take their toll On global trade and further dunk business and consumption sense leads to loss of work and delays in investment decisions.

Some economists predict a world recession and a renewed run to the bottom of the interest rate whose trading tensions do not relieve a group of 20 summits in Osaka, Japan at the end of June, when presidents Donald Trump and Xi Jinping could meet.

In China, Asia's economic heartbeat, Caixin / Markit Manufacturing Purchasing Managers (PMI) showed modest expansion of 50.2, offering investors a near-term relief after an official gauge on Friday showed contraction.

However, the outlook was poor when production growth declined, factory prices were standing and businesses were least optimistic about production since the survey series began in April 2012.

PMI was below the 50-point mark, which distinguishes contraction from expansion in Japan, South Korea , Malaysia and Taiwan, came below expectations in Vietnam and improved slightly in the Philippines.

"The extra shock from escalating trade tensions will not be good for global trade, and if demand in the US, China and Europe continues to soften, which is likely to be poor for Asia as a whole," Aidan Yao said. senior emerging market consultant at AXA Investment Managers.

"With regard to monetary policy reaction, almost everywhere, race will become the disadvantage."

Central banks in Australia and India are expected to cut prices this week, with others around the world looking at the following suit in coming weeks and months. HSBC economist Jingyang Chen said PMIs might mean "Beijing will double down on private enterprise relief."

(Graphic: Global PMI Activity and Trading Number / 2WzqeyD)

Euro area activity is expected to shrink as well, while US production is expected to grow steadily, although economists expect the global downside to finally return to it. US economy. Fed fund rate futures are now almost full pricing in a cut in September, with about 50 percent chance of a move by July 30 to July 31.

J.P. Morgan expects the Federal Reserve to cut rates twice this year, a major change from the previous forecast that interest rates will stay on hold until the end of 2020.

(Graphic: Asian interest rates, click tmsnrt.rs/1U5hc2W) 19659015 ] DIVERTED TRADE FLOWS

In India, where growth is largely dependent on domestic demand, the industrial sector expanded at its fastest pace for three months, with emotions reinforced by a dramatic election win by Prime Minister Narendra Modi .. But further economic reforms will be crucial , highlighted by Friday's data showing that the economy is growing at its slowest pace for more than four years in January-March.

The expansion in the Philippines reflects strong domestic demand and less trade dependence, while for Vietnam, it reflects on the reorganization of business and trade flows due to tariffs.

A Societe Generale analysis shows that in industries hit by the tariffs, such as capital goods and some electronics, Germany, Mexico, South Korea and Taiwan have each won more American business.

Vietnam has been the largest recipient in industries where tariffs are a threat, such as smartphones, and also sees investments from companies moving production out of China.

"Southeast Asian countries, especially Vietnam and Thailand, are often cited as the best choices, and in fact they look," Societe Generale analysts said in a Friday fight.

South Korean exports, seen as a bellwether of world growth, fell in May by 9.4%, worse than a mean forecast for a 5.6% decline, data released on Saturday.

(Graphic: Production activity in Asia – tmsnrtrsrs / 2WEzX6W)

RECESSION FEARS

The trade conflict between China and the United States suddenly increased last month when Trump raised tariffs of hundreds of billions of Chinese imports to 25% from 10% and threatened taxes on all Chinese goods.

If that were to happen and China was to be rendered, "we could end up in a (global) recession of three-quarters," said Chetan Ahya, Global Financial Director at Morgan Stanley.

Washington's new tariff threats against Mexico last week also contributed to the global economic downturn, with stock markets tumbling around the world. The 10-year US government bond yield dropped to 2.121%, one nadir last seen in September 2017. [MKTS/GLOB]

Over the weekend, the excitement again excited between China and the United States over trade, technology and security.

China's Defense Minister Wei Fenghe warned the United States not to interfere in security disputes over Taiwan and the South Kinashas while US Defense Secretary Patrick Shanahan said Washington would no longer "tip" around Chinese behavior in Asia.

On Friday, China also threatened to uncover an unprecedented hit list of "unreliable" foreign firms, groups, and individuals who harmed the interests of Chinese companies. What came after Washington last month put Huawei on a blacklist that effectively blocks US firms from doing business with the Chinese telecom giant.

"We take this seriously. It means that the trade war has not only become a technology war, but also a broad business war. There will be more retaliatory action from China, especially for the technology sector," says Iris Pang, ING's economy in Greater China. and adds that the tension over Taiwan was a fundamental problem rather than an urgent concern.