New Delhi: Despite the recent turbulence in global financial markets, strong regional drivers will help insulate Asia from the adverse impact of a moderate US recession, says global rating agency Standard and Poor’s.
In a report dated 30 April and titled ”Asian Resilience Amid Global Turbulence”, S&P’s Asia-Pacific chief economist, Subir Gokarn, says that while Asia-Pacific growth rates would slow somewhat, the region would still grow at a relatively fast
pace in 2008 and 2009 — buoyed by China and India.
”Two of the three largest economies—China and India—are also the fastest growing and, together, they will continue to grow at about 8% (or above) over the next two years. This provides the region with enormous momentum,” the report says.
S&P’s pegs India’ GDP growth at 8.2-8.7% for calendar 2008 and at 7.9-8.4% for 2009. Of the 14 countries in S&P’s study, only China and Vietnam will fare better than India next year in terms of GDP growth.
The report indicates that India will also be able to contain consumer price inflation at around 5.4-5.7% this calendar year, and at 5-5.5% in 2009.
One reason for Asia’s resilience is that while the economies in the region are still largely export-oriented, they have diversified their exposures away from the US. Export growth to the United States slowed considerably during 2007 for virtually all the countries in the region.
While the report does not provide a break-up of exports to non-Us countries, it says the evidence suggests a significant proportion of the increment in this activity in the recent past comes from the neighborhood.
There is a fairly obvious institutional context for the increasing integration in the neighborhood. Asian countries have been extremely active in entering into trade and broader commercial agreements, both within and outside the region. By 2007, the countries listed in the table were signatories to more than 60 agreements, of which about 36 were with other countries on the list.
Other important factors in the region’s resilience include Japan’s return to positive growth, and the ability of Asia-Pacific’s economies to exploit growth opportunities through greater regional economic integration. Increasing integration is reflected in the overall thrust of trade policy in the region, which has seen a significant increase in intra-regional trade and broader agreements.
Key risks remain
Gokarn also cautions that the region still faces key risks, including a prolonged US economic slump, and hikes in food and fuel prices. ”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,” the report says. ”Managing these risks will be the most important challenge facing policymakers across the region as they try and sustain their own performance while moving towards greater integration.”