Asia-Pacific's slowdown continues; Forecasts lowered

SINGAPORE -- Asia-Pacific's economic slowdown shows no sign of letting up, but policymakers in many countries are now easing in response, according to a report published today tby S&P Global Ratings.

"We have cut our Asia-Pacific forecasts by 0.2% to 4.9% for 2019, and by 0.3% to 4.8% for 2020," said Shaun Roache, S&P Global Ratings' Asia-Pacific chief economist.

"The downward revision for 2019 mostly reflects weaker second-quarter data.

"In 2020, we now expect growth below 6% in China as downward pressure remains unrelenting, and we have revised our forecasts lower for India and South Korea."

Firms are likely to remain cautious in committing to capital expenditure and will continue exploring supply-chain diversification, the report says.

Trade and technology tension between the U.S. and China has resulted in a sharp slowdown in investment in many economies.

The recent trade spat between Japan and Korea added to these headwinds, especially as both economies are important upstream suppliers of highly-differentiated technology goods.

Growth in China remains under substantial pressure. The manufacturing sector, which accounts for about 30% of the economy, is exerting a sizeable drag.

Manufacturing output growth has slowed below 5%, supported mainly by the steel sector; however, this is unlikely to be sustainable, especially if the property sector cools. In the services sector, official data suggest growth slowed by a full percentage point to 7%.

"Policymakers in China have shown restraint and are allowing growth to slow, partly due to a desire to maintain financial stability," Roache said. "At the same time, the transmission of policy easing has become weaker than in the past cycle."

The report says Asia-Pacific interest rates will remain lower for longer.

"In the absence of a U.S. recession or China hard landing, the current central bank easing cycle may not have much further to run, but it remains hard to see tightening on the horizon. With growth remaining below trend at least through 2020, inflation will struggle to rise toward central bank targets.

"At the same time, evidence is building that interest rates will remain weighed down by structural factors, including aging societies and low rates in other major economies.

"In our view, fiscal policy is likely to continue shouldering more of the burden in supporting growth."

S&P Global Ratings expects efforts to cut taxes and boost spending to continue across much of the region in both advanced economies, such as Korea, and emerging markets.

Easier external financial conditions should create room for governments to sustain high public investment rates, including in Indonesia and the Philippines.

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