Asia Pacific Growth Remains Resilient

Most Asia Pacific economies have started 2017 with good momentum, and regional growth is likely to remain relatively healthy by global standards during the rest of the year, said Fitch Ratings in its latest report released on Tuesday.

Asia Pacific sovereign rating trends are mostly stable. However, several rising challenges are likely to weigh on growth as the year wears on, todayonline reported.

Singapore’s economic outlook remains vulnerable to external demand, while certain sectors—particularly the marine and offshore industries—have been hit by the fall in commodity prices. Domestic growth is also likely to remain under pressure as the economy continues to adjust under the government’s economic transformation program.

Fitch expects inflation to rise gradually to around 1% in 2017 as commodity prices recover. The unemployment rate rose slightly in 2016 to 2.1% from 1.9% the previous year, on ongoing restructuring of the economy.

However, this is still a low rate of unemployment by global standards. Over the medium term, restrictions on hiring low-cost foreign labor are likely to lead to a tightening of the labor market and feed through to higher inflation.

Elsewhere in Asia, tighter global financial conditions and another round of US dollar appreciation could create strains. China’s economy is likely to ease, which would dampen external demand around the rest of the region.

A potential increase in global protectionism might also undermine export performance, while geopolitical risks—such as those centering on North Korea—could dampen business sentiment.

Asian exports and business surveys have fared better than expected, said the ratings agency, reflecting surprisingly strong growth in the US and Europe as well as policy-driven stabilization of growth in China.

Expansionary fiscal policy and infrastructure spending have supported domestic demand around much of the region, and some economies are making progress on reforms, most notably India and Indonesia.

However, tighter global financial conditions could see growth decelerate over the next few quarters.

Higher debt-servicing costs in Asia might create pressures in countries where debt has built up rapidly during the period of very low interest rates. Some sovereigns are made vulnerable in this respect by high private foreign-currency debt, such as in Malaysia, or a dependence on foreign inflows—such as in Indonesia. Asset prices could also suffer.

A stronger dollar could have benefits for Asian exporters, but this is offset by the prospect of a slowdown in China and the risk of increased protectionism.