S&P says Asia will pull through hard times

By Cheranka Mendis

Despite the risk of negative global conditions worsening the ground situation in Asian countries, rating service Standard & Poor’s believes that by and large the region will continue to grow, with most countries now building resilience to face and absorb shocks.

Standard & Poor’s Rating Service South East Asia Managing Director Surinder Kathpalia yesterday noted that even though GDP growth across Asia Pacific would be lower in 2012 relative to 2011, the countries would be able to handle the storms brewing in the world market.

However, if the shocks of the European crisis and other factors such as rising oil prices and China slowing down continue to grow, the region will be put to test, Kathpalia said.

Speaking at a luncheon meeting on ‘Rising Global Risks Cloud Asian Outlook’ organised by RAM Sri Lanka and CA Sri Lanka, Kathpalia stated that the S&P was of the opinion that a full-on major financial crisis in Europe was unlikely, while China would make a soft landing.

“As a result, the outlook for most sovereign ratings in Asia will be benign. This is largely because there is resilience both at domestic level and most countries across Asia have built up reserves and implemented a range of measures to strengthen their economies.”

S&P currently has 22 sovereign ratings for Asia Pacific, of which 16 are stable, three are positive (Indonesia, Philippines and Mongolia) and three are negative (Japan, Vietnam and Papua New Guinea).

“We think Asia should be fairly resilient in managing some of the risks emanating from the Western world,” Kathpalia said.

The bigger impact on the region will be made if the recession in Europe intensifies along with the changes taking place in the banking systems in Europe, which would have an impact on funding and capital flows available in this part of the world.

Domestic factors that could worsen matters revolve around politics and inflation. “In terms of other risks, there are also asset bubbles forming in the market,” he noted.

Pointing out that the risks could have implications on Sri Lanka as well, Kathpalia acknowledged that financial sector reforms must be implemented which can create long-term stability. Meanwhile, global imbalances need to be rectified and new areas of growth should be explored.

“The current macroeconomic and fiscal and demographic factors of the US and Europe indicate that they will not be the growth engines for the world,” he asserted.

However, given the current risks, challenges for policy makers are increasing, he said. Policymakers should find ways to bring down interest rates, provide subsidies, etc., and have in place stimulus measures to increase consumption in countries, to ensure high domestic consumption.