S&P lowers Asian GDP growth forecasts

A trifecta featuring a slowdown in China, ongoing troubles in the Eurozone, and a weaker recovery in the US has lead Standard & Poor’s to forecast lower economic growth rates for Asia Pacific.

Wednesday, September 26th 2012, 10:20AM

“We have lowered our base case forecasts of 2012 real GDP growth by about half a percentage point for China to 7.5%; Japan to 2.0%; Korea to 2.5%; Singapore to 2.1%; and Taiwan to 1.9%,” S&P credit analyst Andrew Palmer says.

We have also revised our forecast down by about one percentage point each for: Hong Kong, to 1.8%; and India, to 5.5%. For Australia, the forecast is marginally down to 3.0% from 3.2%. The forecasts for other Asian economies remain unchanged except for the Philippines, which went to 4.9% from 4.3%, reflecting the ongoing strength of that domestic economy."

“Our lower forecast for China recognises that the central government had elected not to inject an economic stimulus of a size and speed necessary for an 8% growth rate. It appears that the approach by the Chinese authorities remains influenced by the unpleasant experience of the inflationary effect, particularly on real estate prices, of the stimulus they initiated in late 2008-2009,” Palmer says.

In turn, the China slowdown has a flow-on effect to the export-oriented Asian economies of Japan, Korea and Taiwan, and the trading port cities of Hong Kong (in particular) and Singapore. The slowdown in China and the economies in the Eurozone and US have also resulted in lower commodity prices.

The lack of monsoon rains has affected India, for which agriculture still forms a substantial part of the economy. Additionally, the more cautious investor sentiment globally has seen potential investors become more critical of India's policy and infrastructure shortcomings.

The credit conditions for rated portfolios in Asia Pacific remains mixed. We have factored our base case GDP scenarios into our current ratings on and issues in the region. At this stage, the short-term impact of the greater-than-anticipated slowdown on credit ratings is likely to be limited to the more leveraged entities.

“Naturally, any worsening of the economic conditions in the Eurozone will increase contagion risk for Asia Pacific, given the region's--particularly the open economies'--sensitivity to capital flows and trade,” Palmer says.

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