The Asia-Pacific will remain a global growth center with India, China and the Philippines as regional leaders, S&P Global Ratings, in a recent report titled “Major Asia-Pacific Economies Show Stronger Growth; Risks Are Mostly Geopolitical said.
Among the largest economies, China and Japan show better-than-expected growth momentum, although they have differing risk profiles, it noted.
China’s growth was better than expected at 6.9 percent in the first half of the year–comfortably above the 6.5 percent official target.
Its credit metrics have improved, reflecting a public investment boost and higher producer prices, but credit quality is still strained, it added.
The Philippines was projected to grow 6.4 percent this year, 6.5 percent in 2018, 6.6 percent in 2019 and 6.7 percent in 2020.
Only India will outpace the Philippines with a growth rate of from seven to 7..9 percent until 2020.
“Japan posted a strong second quarter of 2.5 percent annualized growth, driven by rising confidence and spending, although wages and prices remain stubbornly sticky,” said Paul Gruenwald, Asia-Pacific chief economist at S&P Global Ratings.
Australia’s second quarter was strong as well, on the back of robust consumption and net exports.
India suffered its second straight disappointing quarter, with growth of about six percent, as uncertainties around the launch of the much-awaited goods and services tax crimped spending.
“The rise in global commodity prices in the past few quarters has tended to help upstream producers and energy exporters. Producer price inflation has risen (as well as the profits of these firms), but this has not translated into broad-based consumer price inflation,” Gruenwald said.
Central banks in Asia-Pacific have therefore mostly kept policy rates on hold, and seem cautious to follow the Fed higher. The strengthening of regional currencies against the U.S. dollar on geopolitical concerns have tightened monetary and financial conditions, generating further headwinds against potential policy rate rises.
The likelihood of a macro surprise from China is low, given the preference for stability around the Party Congress in mid-October, and Japan’s growth path looks pretty solid for now, S&P said.
Geopolitical risks are another matter. A flare-up over North Korea represents the most active risk in the region, although we still regard this as a very low probability event.
“Markets have taken the escalating rhetoric in stride with minimal effects on asset prices and activity. However, the situation with North Korea remains fluid, to say the least,” Gruenwald said.
Geopolitical risks remain elevated and very much in the headlines (and difficult to quantify) but economic risks look less pressing, at least in the near term, S&P added.