The Asian Development Bank (ADB) is not concerned about the US-China trade spat and is instead forecasting another strong year of exports for Asia Pacific.

The development bank’s chief economist, Yasuyuki Sawada, says that the size of the bilateral tariffs introduced thus far is minuscule compared with overall trade and, while mindful of the potential for the situation to escalate, says they will have minimal impact on regional trade.

“The amount of trade policy change under discussion is quite small compared to total exports and GDP size. In that sense, the level of potential risk is under control,” he told GTR in Hong Kong, after launching the ADB’s annual forecast for GDP growth in Asia.

The report predicts regional GDP to hit 6% this year, a marginal decrease on 2017 (6.1%). Excluding high-income countries in the region, growth will be 6.5%.

The momentum is propelled by a surge in global trade and pickup in commodity prices. Recoveries in the US, EU and Japan continue to provide consumer demand for products produced in Asia, with growth in these areas forecast to continue in 2018 and 2019.

Meanwhile, intra-regional trade is also boosting growth and will act as a protective buffer against east-west trade disputes, Sawada says.

These flows will also help alleviate the effects of capital flight, resulting from favourable economic conditions in the US. Many have been predicting the repatriation of US funds in Asia, following tax reform and a series of Federal Reserve interest rate hikes this year. This would, in theory, remove some liquidity from the market, driving up pricing for trade finance products.

“Overall if you’re thinking about capital flight out of Asia, you can think about the other side, which is completely symmetric risk. Asian companies which are uncomfortable with the risks of having their money overseas, taking money back home. They are increasingly looking for investment opportunities in the region. There are other positive channels that can generate positive flows. Currency depreciation against the US can also make Asian products more competitive,” he says.

This is a long-term trend: the total regional share of total inward FDI in Asia went from 30% in 2007 to 55% in 2016, showing that Asian companies are becoming more comfortable with the idea of investing their money into the region.

It is further exemplified by the booming consumer markets around the region, particularly in East and Southeast Asia. China, Hong Kong, South Korea and Taiwan will register double-digit growth on a year-on-year metric for consumer confidence, while Indonesia, Malaysia, the Philippines and Thailand also perform well on the same index.

China’s economy is forecast to moderate slightly. The ADB is looking at 6% growth in China this year, down from 6.3% in 2017 (note, these data vary from the official government figures for GDP growth, with the ADB using its own models for GDP).

However, this is occurring against a backdrop of financial consolidation, with the People’s Bank of China (PBOC) taking concrete measures to drain some of the leverage from the economy.

Last week, GTR reported on a directive to state-owned banks to stop lending to local governments, with a view to deleverage parts of the economy which have been fuelled by the rapid accumulation of debt. The directive warned banks not to lend money for capital projects, investment funds or public-private partnership projects.

Carlos Casanova, Asia Pacific economist at credit insurer Coface, warned that this could lead to more defaults and bankruptcies, particularly in heavy industrial sectors such as construction and energy, which have long been plagued by overcapacity.

However, Sawada argues that this restructuring is crucial to the long-term health of the Chinese economy. “If you grow by almost 7% a year for 10 years, your economy will double in size,” he says, pointing out that most countries would be extremely satisfied with such levels of growth.

South Asia, meanwhile, remains the fastest-growing region in the world, driven by a recovery in India, which is expected to grow by 7.3% this year. The demonetisation of high-value bank notes and the full implementation of the goods and services tax (GST) have been praised as measures that will help make India more efficient. The ADB credits these policies with bolstering growth through 2018 and 2019.