Weak China growth, Chinese economy point to slower Asia growth: S&P

SINGAPORE - Weaker global trade and a Chinese economy still weighed down by the property sector suggest slower growth ahead for the Asia-Pacific region, says ratings agency Standard & Poor's. The report also notes that downside risks to the agency’s baseline forecasts for the region have narrowed.

S&P says its assessment reflects recent Chinese Government policy actions that place near-term macroeconomic stability before market discipline, “although these may have adverse longer-term consequences”.

"China's property market correction continues to be the region's main risk," says Paul Gruenwald, S&P's Asia-Pacific chief economist.

"But some signs of stabilisation are appearing following an increasingly forceful policy response."

Gruenwald cautioned, however, that "the market adjustment seems far from over as China's property prices are still dropping across a swathe of lower-tier cities. Our growth forecasts for China in 2015 and 2016 remain unchanged at 6.8% and 6.6%, respectively, with the risks still slanted toward the downside."

The Asia-Pacific growth story is not all gloom and doom though. The pace of activity is picking up in Japan, and we have raised our forecasts to 0.9% for 2015 and to 1.3% for 2016. In India, confidence continues to rise, despite concerns about investment quality. Our forecasts of 7.4% growth for 2015 and 8.2% for 2016 are the highest in the region.

The report also notes that the incipient recovery in the US, particularly for durable goods consumption, has yet to lead to a sustained export bounce in Asia-Pacific. This is especially true for the more open, trade-dependent economies of South Korea and Taiwan, where export growth remains lacklustre.

Gruenwald also notes that "the large drop in oil prices has paid only limited growth dividends" for the region, despite its heavy external energy dependence.

Aside from the Chinese property market correction, another risk discussed in the report is the effect of US interest rate normalisation and whether central banks in Asia-Pacific will follow the Federal Reserve.

While any US rate increase would depend on the strength of the economy, he said, it is unclear whether a new generation of borrowers (in Asia-Pacific) have built more normal rates into their spending and investment decisions.

Absent a recovery in global trade to levels seen before the financial crisis, and a more market-based and sustainable China, Asia-Pacific's "steady state" growth rate will need to be revised downward, he says. www.standardandpoors.com (ATI).