S&P sees steady growth in Asia Pacific

MANILA, Philippines - Standard & Poor Financial Services (S&P) expects economic growth in the Asia Pacific region to remain steady this year and next.

In a report, S&P said regional gross domestic product (GDP) is expected to expand a steady 5.4 percent in both 2014 and 2015. 

“2014 is shaping up to be a good but not great year for Asia Pacific,” it said.

For the Philippines, the international credit rating agency expects the economy to expand 6.6 percent this year, taper off to a more modest six percent in 2015, and continue to move sideways at 6.1 percent in 2016.

S&P likewise forecasts that inflation would on the average hit 4.1 percent this year, slow to 3.5 percent in 2015, and 3.7 percent in 2016.

Policy rate is likewise forecast at 3.8 percent this year, and 4.3 percent in 2015 and 2016.

Across the region, inflation will remain under control although the more advanced economies may see output gaps to narrow somewhat especially in economies operating below capacity.

“The Philippines may be the exception, having experienced rapid growth, driven by the business process outsourcing (BPO) sector and the significant spillovers it has had on the rest of the economy,” S&P said.

Japan and Malaysia will likely see higher inflation from consumption taxes. For India and Indonesia, tighter monetary policy enacted during the previous round of financial market stress will cause the consumer price index (CPI) to moderate.

Policy makers likewise may not have any reason to move interest rates in either direction over the year. Policy rates are still quite accommodative, growth is steady or improving, and inflation remains largely benign, it added.

However, the Bangko Sentral ng Pilipinas (BSP) raised the required reserve ratio of the banks in order to drain additional liquidity from the system, while the Reserve Bank of New Zealand raised its policy rate in March and April. 

Southeast Asia, as a whole, will be characterized by country-specific factors rather than sub-regional ones. 

Thailand will continue to show gasping movement as internal and political problems are stifling movement of goods and credit internally.

What most economists are watching are Indonesia and India, which will be holding elections this year. Being two of the largest economies (and populations) among the so-called tigers, the results and the process by which the elections are held could make or break its economies. 

Both countries were hit hard by financial market turbulence last summer, and saw their currencies weaken substantially and growth fall. The proximate cause of the sell-off, the large current account deficits, has narrowed and currencies have strengthened in the latest tapering related sell-off.

 â€œAt issue in both economies is the political will to tackle various fiscal subsidies that contributed to budget concerns as well as current account deficits; and the friendliness of the investment regime, given that longer term, more stable flows are needed to credibly finance ongoing current account deficits,” S&P said.

Japan and China are likewise expected to record modest growth this year, with the latter continuing to absorb greater number of regional-originated exports.