China's bank lending in August more than doubled from the previous month
KUALA LUMPUR: S&P Global Ratings sees widening risks for Asia-Pacific economies despite a firm start in 2017, especially due to significant political developments in the region's Big Three economies – China, Japan and China.
It said on Friday the developments which will shape its baseline and risk scenarios this year and beyond are the recent China's National People's Congress in mid-March, Japanese prime minister's nomination to a third term as party head and India leader's victory in a key state election.
In its report, titled "Asia-Pacific economies' smooth start to 2017: What could possibly go wrong?", it said China's National People's Congress was the platform for launching the main economic targets for the year.
Paul Gruenwald, Asia-Pacific chief economist for S&P Global Ratings, noted that the rating agency's 6.4% GDP growth forecast for 2017 looks safe for now.
"We will be watching nonperforming loans and the related credit quality indicators in China, as well as whether capital outflow pressures rear their heads again."
He forecasts Japan's GDP growth at 1.3% this year and thinks growth can be around 1% over the next few years. Although growth may be decent, the country needs some external help to complement its unconventional monetary stance aimed at getting CPI inflation to 2% over the medium term and nominal GDP growth to 3%.
“India's effects from demonetisation are fading and a return to the growth path prevailing before the currency note swap looks to be increasingly likely. This should be a two-quarter event, meaning things will become clear by mid-2017,” he said.
Despite the optimism, S&P Ratings said the list of things that could go wrong is lengthening and now includes US-China trade relations (and lower US global engagement more generally), a possibly faster pace of US Federal Reserve rate hikes and their effects on capital flows, and heightened geopolitical tension. So while the waters are currently calm, turbulence ahead certainly cannot be ruled out.
"The largest near-term risk is US-China trade relations. It is still unclear who has the upper hand in President Trump's administration: the globalists or the nationalists.
"But all is not doom and gloom; there are upside risks as well. The nascent reflation of the global economy brings with it the promise of higher trade growth, higher nominal income growth, and a return of 'animal spirits,' which would lead to a rise in investment," Gruenwald said.
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