S&P report says Asian economies will stay on track

Source : Business Times - 30 Apr 2008

The economic engines of India and China will help keep Asia-Pacific economies on track amid a global slowdown, but a protracted US slump and rising inflation pose possible hazards, a report said on Wednesday.

The most significant threat to the region’s macroeconomic stability is inflation, in particular the recent surge in food and oil prices, according to the report by Standard & Poor’s Ratings Services.

‘There are some visible threats to the region in the form of food and energy prices, which may adversely affect performance over the next couple of years,’ said S&P Asia-Pacific chief economist, Subir Gokarn, according to a statement. The most important challenge facing regional policy makers was managing inflation while sustaining economic performance, Mr Gokarn said.

The region’s economies are expected to grow more slowly this year and in 2009, although they will maintain a relatively fast pace on the back of strong regional drivers, the S&P report said.

China and India, two of the three largest economies and the fastest growing, will together continue to grow at about 8 percent or more over the next two years, it said.

‘This momentum will help sustain a positive growth environment for Asia-Pacific as a whole,’ S&P said. ‘The ability of the region’s economies to insulate themselves against a U.S. recession is enhanced by their ability to exploit the opportunities in the region through greater economic integration.’ Japan’s return to positive growth is another factor in the region’s resilience, although the economy is predicted to slow compared to the expansion rates of more than 2 per cent in the past two years, the report said.

‘Japan’s growth, in turn, reinforces the growth impulses in other countries in the region,’ S&P said. The report forecasts Japan’s real gross domestic product to be above 1 percent this year and as much as 2.2 per cent next year.

The report said that Asian economies were also more resilient because they have become less dependent on exports to the US as recent efforts to expand regional integration start to bear fruit.

‘Asian countries have been extremely active in entering into trade and broader commercial agreements, both within and outside the region,’ the report said. ‘Fast-growing neighbours, particularly those whose growth is driven from within, offer enormous opportunities for all these countries - and they are all trying their best to exploit those opportunities.’ S&P said, however, that sustained Asian growth depended on the US recession being moderate and brief.

‘A prolonged slump in the US economy and the effect it will have on demand for imports, particularly of consumer goods from the region, will impact on wage incomes and investment activity in the region,’ it said. — AP