KUALA LUMPUR: Amid a backdrop of weaker global trade and higher interest rates, economies across the Asia-Pacific region are poised for resilient growth in 2023, although weaker than in 2022.
In its latest Asia Pacific’s economic outlook update, S&P Global Ratings (S&P) has cut its 2023 gross domestic product (GDP) growth forecast for China to 4.8% from the 5.2% forecast made in June, following a property-driven downturn.
However, the credit rating agency expects the region’s GDP excluding China to grow by 3.9% in 2023, compared to the 3.8% forecast made in June, owing to the resilience of respective domestic economies.
S&P noted that in most emerging-market economies, demand has been supported by the resurgence of the buoyant secular consumption trend after the pandemic, along with less impact from higher interest rates compared to developed economies.
Meanwhile, in developed economies robust labour markets have bolstered demand. It pointed out that, in Asia-Pacific, excluding China and Vietnam, consumption picked up 0.5 percentage points (ppt) to 4.5% year-on-year (y-o-y) in the second quarter in real terms, due to an acceleration in emerging markets.
Investment growth also held up, with the real y-o-y expansion easing 1 ppt to 4.1% in the second quarter and momentum remaining buoyant in emerging markets.
S&P noted that, overall, growth in the region has generally remained resilient, with y-o-y GDP growth picking up in the second quarter in both developed and emerging Asian economies.
“South-East Asia has done relatively well since mid-2022, overtaking Asian developed market economies and the US S&P Global purchasing managers’ indices (PMIs) suggest momentum has broadly held up in the third quarter,” S&P added.
It said manufacturing PMIs in August were higher than or close to a reading of 50 everywhere except for Malaysia, the Philippines, Taiwan, and Thailand.
“Amid resilient domestic demand, the slowdown in 2023 should remain modest in most economies while easing inflation and external deficits have meant a reprieve for central banks. Still, high US interest rates and risks to growth persist, while oil and food prices have risen again. Ongoing vigilance remains vital,” it added.
Beyond the Asia-Pacific region, S&P believes global economic conditions remain uncertain.
“In the United States and Europe, the big question is whether policymakers can achieve a soft landing by bringing down inflation without causing a substantial downturn. Recent developments have generally been encouraging,” S&P noted.
S&P anticipates a soft landing in both of the large economies, but it believes risks remain tilted to the downside.
Furthermore, the rating agency foresees another 25 basis points increase in the policy interest rate this year, with the first cut anticipated in the second quarter of 2024, implying that the strain on Asia-Pacific markets and currencies will likely persist through early 2024.
In China, S&P said renewed property weakness has weighed on economic growth. Falling housing sales and construction starts have not only impacted various sectors but also affected consumer confidence.
“The downturn also squeezed local governments’ spending amid weak land revenues. In addition, government spending was much lower than budgeted through July, leading to a fiscal contraction, and exports have slowed, reflecting weak global demand,” it said.