Global rating agency Standard & Poor’s (S&P) Monday cut the economic growth forecast for the Asia Pacific countries, including China and India, citing the slowdown in China, euro zone troubles and a slower-than-expected recovery in the U.S.
The rating agency lowered the base case forecasts of 2012 real GDP growth by about one percentage point each for Hong Kong (to 1.8 percent) and India (to 5.5 percent). It reduced about half a percentage point each for China (to 7.5 percent), Japan (to 2.0 percent), Republic of Korea (to 2.5 percent), Singapore (to 2.1 percent) and Taiwan (to 1.9percent).
In its report titled "Asia Pacific Feels the Pressure of Ongoing Global Economic Uncertainty,” S&P’s credit analyst Andrew Palmer said: "The China slowdown has a flow-on effect to the export-oriented Asian economies of Japan, Korea and Taiwan, and the trading port cities of Hong Kong (in particular) and Singapore. The slowdown in China and the economies in the euro zone and U.S. have also resulted in lower commodity prices.”
"Our lower forecast for China recognizes that the central government had elected not to inject an economic stimulus of a size and speed necessary for an 8% growth rate. It appears that the approach by the Chinese authorities remains influenced by the unpleasant experience of the inflationary effect, particularly on real estate prices, of the stimulus they initiated in late 2008-2009," Palmer added.
S&Ps reduced India’s growth rate despite the positive pro-economy measures, including FDI in key sectors and a hike in diesel prices, announced by the government recently.
“The lack of monsoon rains has affected India, for which agriculture still forms a substantial part of the economy. Additionally, the more cautious investor sentiment globally has seen potential investors become more critical of India's policy and infrastructure shortcomings,” Palmer said.
The uncertainty in the euro zone and a weaker recovery in the U.S. economy are looming large over the Asia Pacific economies.
"Naturally, any worsening of the economic conditions in the euro zone will increase contagion risk for Asia Pacific, given the region's--particularly the open economies'--sensitivity to capital flows and trade," said Palmer.