Stronger growth in major Asia economies, risks mostly geopolitical: S&P

October 4, 2017

SINGAPORE -  Asia-Pacific's economic picture looks broadly positive after the third quarter, according to S&P Global Ratings. Among the largest economies, China and Japan show better-than-expected growth momentum, although they have differing risk profiles. But North Korea remains an active risk.

China's growth was better than expected at 6.9% in the first half of the year - comfortably above the 6.5% official target.
 
“Its credit metrics have improved, reflecting a public investment boost and higher producer prices, but credit quality is still strained,” said Paul Gruenwald, Asia-Pacific chief economist at S&P Global Ratings.

 

"Japan posted a strong second quarter of 2.5% annualised growth, driven by rising confidence and spending, although wages and prices remain stubbornly sticky,"
 
Australia's second quarter was strong as well, on the back of robust consumption and net exports. India suffered its second straight disappointing quarter, with growth of about 6%, as uncertainties around the launch of the much-awaited goods and services tax crimped spending.
 
"The rise in global commodity prices in the past few quarters has tended to help upstream producers and energy exporters. Producer price inflation has risen (as well as the profits of these firms), but this has not translated into broad-based consumer price inflation," Gruenwald said.
 
“Central banks in Asia-Pacific have therefore mostly kept policy rates on hold, and seem cautious to follow the Fed higher.
 
“Strengthening of regional currencies against the U.S. dollar on geopolitical concerns have tightened monetary and financial conditions, generating further headwinds against potential policy rate rises.”
 
 
“Central banks in Asia-Pacific have therefore mostly kept policy rates on hold, and seem cautious to follow the Fed higher.
 
“Strengthening of regional currencies against the U.S. dollar on geopolitical concerns have tightened monetary and financial conditions, generating further headwinds against potential policy rate rises.”
 
 
Gruenwald said a flare-up over North Korea represents the most active risk in the region, “although we still regard this as a very low probability event.
 
"Markets have taken the escalating rhetoric in stride with minimal effects on asset prices and activity. However, the situation with North Korea remains fluid, to say the least."