China’s rebound to fuel Asia-Pacific outlook

Moody’s said that the recovery in China would help Asia-Pacific’s growth to outperform most other regions over the next one to two years, amid a slight moderation in growth in India, Indonesia and Japan. — Reuters

PETALING JAYA: China’s economic rebound post-reopening of its international borders will partly fuel Asia-Pacific’s growth trajectory in 2023.

Moody’s Investors Service said that the recovery in China would help Asia-Pacific’s growth to outperform most other regions over the next one to two years, amid a slight moderation in growth in India, Indonesia and Japan.

Overall, the research firm expects strong – though moderating – economic growth rates in Asia-Pacific to support the region’s credit conditions in 2023.

“Peaking inflation globally will provide space for monetary tightening cycles to slow, but financial conditions will remain challenging for the weakest-rated issuers.

“Meanwhile, geopolitical risk will increasingly shape business decisions.

“Economic activity will normalise closer to potential levels in most of the region’s major economies, while we expect an acceleration in activity in China as authorities lift Covid-19-related mobility restrictions.

“However, China’s troubled property sector and weaker global demand pose risks to regional growth, with the potential for further geopolitical shocks to ripple through to the supply and prices of key commodities,” Moody’s said in a report yesterday.

Elaborating about geopolitical risks, Moody’s noted that governments, multinational companies and financial institutions may be forced to choose sides along geopolitical fractures.

This will drive shifts in supply chains, trade and technology flows and security alliances, and will increase costs to businesses and drive longer-term inflation risks.

On Malaysia particularly, Moody’s said one of the biggest geopolitical risks, the US-China tensions, will continue to have an impact on companies operating in the country.

“US-China tensions will be among the most significant sources of fault line formation in the region, as illustrated by new US restrictions on China’s access to semiconductor technology and tools.

“These restrictions will have broad consequences for companies based in Japan, South Korea, Malaysia and Taiwan, among others,” it said.

In the event China’s growth prospects weaken further, Moody’s noted that depreciation pressures on the yuan may create competitive disadvantages for other exporters in the region such as Malaysia, Thailand and Vietnam.

Economists had said earlier that Malaysia’s gross domestic product (GDP) is likely to grow at a slower pace in 2023 due to macroeconomic challenges, although it is generally believed that Malaysia would avert a recession this year.

Bank Negara had also paused its rate hike in January, presumably because of the slower economic environment projected ahead.

Nevertheless, it is worth noting that the International Monetary Fund (IMF) has recently maintained its GDP growth forecast for Malaysia.

In the January 2023 update to its World Economic Outlook, the IMF anticipates the Malaysian economy to expand by 4.4% in 2023, as compared to 6.7% last year.

The economy, however, is expected to pick-up its pace in 2024 with a GDP growth rate of 4.9%.

For the global outlook, the IMF had slightly raised its 2023 forecast this week, premised on China’s reopening and the “surprisingly resilient” demand in the United States and Europe.

Despite that, the IMF expects the global economy to still slow to 2.9% in 2023 from 3.4% in last year.

It also warned about the risk of recession in major advanced economies, on the back of continued tightening of monetary policies by global central banks to fight inflation.