The overall picture of Asia-Pacific economies has improved slightly in the past three months.
This is according to a report published Monday by S&P Global Ratings titled, “Economic Outlook Asia-Pacific Q3 2023: Domestic Demand, Inflation Relief Support Asia’s Outlook.”
It said that while it nudged down its growth forecast for China to 5.2 percent from 5.5 percent it left its forecast for the rest of the region broadly unchanged, in part because of domestic resilience.
“China’s recovery should continue but at an uneven pace, with investment and industry lagging,” said S&P Global Ratings Asia-Pacific chief economist Louis Kuijs.
“Other Asia-Pacific economies are on track to slow due to the global slowdown and interest rate hikes. Still, domestic resilience should ensure meaningful growth,” Mr. Kuijs said.
“We see the fastest growth at about 6 percent in India, Vietnam and the Philippines. Growth in the region ex-China should pick up to 4.4 percent in 2024 amid easier monetary conditions and somewhat better global growth,” it said.
S&P forecasts 3.8 percent GDP growth in 2023 for Asia-Pacific excluding China, after 4.7 percent in 2022. “Inflation and external deficits are receding; pressure on central banks to raise rates has diminished. Calls for rate cuts will grow louder,” it said.
It said, however, there generally is little room for lower rates any time soon in a setting of high US interest rates and lingering inflation risk.
S&P identified two key risks to the Asia-Pacific outlook. One is that growth in the US and Europe slows more than anticipated due to larger-than-expected required monetary tightening amid sticky inflation. The other is that substantial setbacks to China’s recovery weigh on growth in Asia-Pacific.
“We expect US policy rates to increase and see them starting to fall only in 2024. The strain on Asia-Pacific markets and currencies will consequently persist for the rest of 2023,” it said.
“Modest sequential core inflation is largely alleviating the need for rate hikes. However, rate cuts will be slow to materialize, in part because of persistent high rates in the US,” Kuijs said.
China’s key downside growth risk is that its recovery loses more steam amid weak confidence among consumers and in the housing market.
S&P expects the Bank of Japan to remain very careful, tightening monetary policy meaningfully only if it sees signs that the rise in inflation will endure. It also anticipates the Reserve Bank of Australia to raise its policy rate further this year.