SINGAPORE (Standard & Poor’s) Sept. 9, 2015–Abysmal trade data and fears about China’s market stability have resulted in lower GDP growth forecasts for economies in the Asia-Pacific, said Standard & Poor’s Ratings Services inreport published today.
The report, titled “Asia-Pacific Growth Slips Again As China Wobbles And TradeTumbles Further,” said Standard & Poor’s projects slower growth, higher volatility, and more risks for the region.
Our 2015 GDP growth projection for China remains unchanged, but we have lowered those for 2016 to 6.3% and 2017’s to 6.1%. We also shaved our GDP forecasts for Japan to 0.6% in 2015. For Australia, we trimmed our GDP forecasts to 2.5% for 2015 and 2016, and 2.9% in 2017.
“The Tiger economies of Asia (Hong Kong, Singapore, South Korea, and Taiwan) have taken a major hit from slow export growth,” said Paul Gruenwald, Standard & Poor’s Asia-Pacific chief economist. “And in a break from the past, these economies may not be the leading beneficiaries of a U.S. recovery. We have lowered their GDP growth further for 2015-2017, and the risks to growth and inflation remain on the downside.”
Standard & Poor’s cut its growth forecasts for Taiwan to 1.5% for 2015, 2.2% in 2016, and 2.5% in 2017. We also shaved our projections for South Korea to 2.7% this year and 2.8% in 2016.
China’s major stock market correction and the government’s measures over the past few months have resulted in market concerns over the policymakers’ ability to manage market turbulence and the possible spillovers to the domestic economy and the rest of the world.
“Although market fears that the sky is falling are almost certainly overblown, in our view, they have been enough to ‘move the needle’ and prompt us toupdate our foreign currency forecasts as well,” Mr. Gruenwald said.
We are less uneasy about the state of the Chinese economy. The second-quarter GDP growth numbers were in line with the official annual growth target of 7%.
This did not square with the doomsday view of the market following the steep stock market correction. While the actual GDP growth rate could be below the official numbers, the evidence suggests that the rotation to a more consumption- and services-based economy remains intact.
The key factor in China is the extent to which the authorities will fight the necessary growth moderation by continuing to allow more debt creation. Higher growth now means more imbalances to work off and lower growth in the medium term.
“The downside risks to our baseline forecast for Asia-Pacific have increased.These risks remain centered mainly around developments in China and their
impact on the rest of the region and beyond,” Mr. Gruenwald said.
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