Trade in services the growth path for Asia’s future: S&P

HONG KONG – A study of Asia-Pacific services trade data shows that services are now an essential complement to goods trade development, and therefore a necessary part of the macro and credit analysis toolkit, says ratings agency Standard and Poor’s.

Export competitiveness in services is rising in all key economies and in most key services trade categories in Asia-Pacific, says the report.

But the region has only recently caught up with global averages, and now, importantly, Asia’s services competitiveness compares well with general levels of economic development.

"The services trade picture fits nicely into Asia-Pacific's macro rebalancing," said Paul Gruenwald, S&P Global Ratings' Asia-Pacific chief
economist.

"Industrialisation and moving up the goods value chain will still be important, but the rise of services as the region continues to converge with the advanced economies looks likely to gain steam, despite slower growth."

Trade in services will flow naturally from the ongoing macroeconomic developments in the region, the report argues. This is in contrast to Asia-Pacific's trade in goods, which was previously identified (and actively supported) by policymakers across the region as the driver of growth.

On the credit side, the prospects from services are mainly positive as well, S&P says.

“Services are a less credit-intensive form of activity than goods (whether traded or not).

“Hence, the movement toward more services-intensive growth and trade as the region continues to experience rising income and an expanding middle class should be a source of comfort in terms of financial sustainability.”

The report adds: "Despite the growth of services trade, overinvestment in mostly State-controlled firms stemming from over-borrowing may continue as policymakers cling to the old model.

“There does appear to be a trade-off between more control in the form of industrial and State-led growth, and more sustainability in the form of less credit-intensive, but less centralized, services-led growth." www.standardandpoors.com (ATI).