APAC economic conditions positive but risks rising: S&P

SINGAPORE -- The favourable macroeconomic environment in Asia-Pacific remains intact, but risks relating to capital flows and trade have increased, says S&P Global Ratings in a report published today. Cautious optimism on trade has faded somewhat in recent weeks.

S&P says U.S.-China trade tensions have heated up again as a U.S. delegation's visit to Beijing yielded no tangible results and the Chinese Vice Premier's visit to Washington
looks destined for similar results.
 
“It is uncertain whether the U.S. objectives are related to trade only or the broader relationship, including investment and intellectual property,” the report says.
 
“Capital outflow risks and currency pressures have also increased recently.
 
“Several Asia-Pacific currencies continue to decline against the U.S. dollar, driven by higher U.S. interest rates and higher-than-expected economic growth in the U.S.”
 
The report says the first round of economic data out of China for the second quarter points to steady growth. PMIs remain above 50 across the board, with non-manufacturing and services leading the way.
 
Credit growth is rising again, and inflation remains low. Exports rebounded and the trade balance reverted to its usual surplus in April. Growth remains consumer-led and supported by non-manufacturing and services activity.
 
"The solid economic data give us little reason to change our outlook of steady growth in China at present," said Paul Gruenwald, S&P Global Ratings' chief economist.
 
"However, the credit data shows that progress on deleveraging remains modest. We expect any tightening of financial conditions to be gradual."
 
Japan's GDP contracted 0.2% in the first quarter of 2018 and 0.6% annualised, following eight consecutive quarters of expansion.
 
Consumption was flat while residential investment declined sharply. Net exports subtracted 0.1% from quarterly growth. The modest upward trend in inflation stalled in April.
 
"The weak first-quarter GDP numbers in Japan suggest a risk of slowing economic momentum, although we currently think the poor outturn was an outlier," Gruenwald said.
 
"Based on the growth and inflation numbers, we see no reason for the Bank of Japan to change its policy of quantitative easing with yield curve control in the near term."  www.standardandpoors.com (ATI).