Asia may respond slowly to economic shock, says S&P report

SINGAPORE (Standard & Poor’s) Feb. 8, 2012--Global economic uncertainties are resurging. Policymakers in Asia will have to work quickly to offset the effects of a global recession, if it occurs. But they might not be able to do so, given their respective domestic political challenges. That’s according to a report titled “Political Distractions Could Dull Asia’s Response To An Economic Shock,” that Standard & Poor’s Ratings Services recently published.

Asian economies’ resilience to another global recession mainly depends on whether Asian policymakers can take quick and decisive actions to boost domestic demand. If another global slowdown occurs, Standard & Poor’s Ratings Services believes that Asia will likely need to fuel its own growth. Unlike in 2009, the developed economies are less likely to provide strong fiscal stimuli in such a scenario.

“Domestic political issues may top the list of concerns this year for many Asian politicians,” said Standard & Poor’s credit analyst Kim Eng Tan. “In another global slowdown, they may not repeat the decisive policy responses of 2008-2009, possibly leading to volatile growth.”

According to the report, key Asian countries, including China and South Korea, will face leadership changes or elections in 2012. Domestic politics in India and Japan are making it harder for those governments to push their policies forward. Bangladesh and Pakistan are facing political instability. Kim Jong Il’s sudden demise in late 2011 also raised security risks in eastern Asia.

Asia could experience significant economic volatility if the key economies in the region meet a global slowdown with distracted policy responses. As a result, Asian sovereign creditworthiness in this scenario could be more negative compared with 2008-2009.