S&P: Asia-Pacific growth forecasts lowered for 2015, 2016...India continues to shine

The twin factors of strengthening U.S. economy and lower oil prices have yet to lift economic data in much of Asia-Pacific. 

Standard & Poor's Ratings Services has lowered its GDP growth forecasts for China, Japan, and the Asian  Tiger economies, it said in a report published today, titled "Stronger U.S. Economy And Lower Oil Prices Aren't Boosting Asia-Pacific Growth." 

The twin factors of strengthening U.S. economy and lower oil prices have yet to lift economic data in much of Asia-Pacific. Central banks have shifted their stance in recent months, with a critical group of monetary policymakers cutting rates or easing financial conditions and the remainder moving to a more neutral stance. This is contrary to what we observed until the latter part of 2014. Weaker growth in China and Japan may be weighing on overall sentiment, although India's star is rising. 

Standard & Poor's trimmed GDP growth forecasts for China to 6.9% this year and 6.6% in 2016, from 7.1% and 6.7%, respectively. Although the change is small and the government has not announced its official target for 2015 (we expect that to happen at the National People's Congress in March), the symbolic nature of last year's missed target carries over to this year and beyond. We believe the official growth target will be about 7%.

"For Japan, we have lowered our growth forecast to 0.7% this year (from 1.3%) and 1.3% in 2016 (2.1% previously)," said Paul Gruenwald, Asia-Pacific Chief Economist. "Japan is likely to struggle to achieve a meaningful uplift in growth this year, owing to base effects from the poor fourth-quarter performance in 2014. We believe growth and core inflation can gradually climb higher, now that the Japanese government has postponed the second leg of its consumption tax hike until early 2017."

India should be the Asia-Pacific region's bright spot. We revised our growth forecasts for the country upward, reflecting new official data based on methodological improvements. Standard & Poor's now forecasts GDP growth at 7.9% in the fiscal year ending March 2016, versus 6.2% earlier, and 8.2% in fiscal 2017, from 6.6% previously. Rising investment and low oil prices have been boosting India's growth.

"We now expect slightly lower real GDP growth in Asia-Pacific, but significantly lower inflation, higher current accounts, weaker currencies, and more accommodative monetary policy stances, despite our steadfast view that the U.S. Federal Reserve will begin its long-awaited rate hikes this summer," Gruenwald said. 

"The risks around our baseline forecasts have become more balanced owing to our weaker central scenario, but we continue to worry how the correction in the Chinese property market might play out, and how the many new borrowers in Asia-Pacific will handle the first Fed rate hike in a decade," he added.