NEW DELHI: India is likely to lead the Asia Pacific region with 7.3% growth this year, after an 8.7% increase in 2021 as the pandemic eases and economic activities recover, said Standard and Poor’s (S&P) on Thursday.
Apart from India, other key nations in the Asia Pacific like China, Hong Kong, Indonesia, Malaysia, Philippines and Vietnam have strong balance sheets to weather current account deficits without hurting their external ratings, said Standard and Poor’s (S&P).
“The continuing economic recovery in these regions should bolster household income growth and help to temper the pressures on government budgets. Several governments in the region have responded to the early-2022 rebound in COVID cases and higher inflation with increased budgetary support” noted S&P.
It said that the current account deficits could also moderate as tourist arrivals continue to rebound and higher prices dampen demand for imported food and energy.
S&P said impact of higher food and energy imports on external balances should also be absorbed within current rating levels.
S&P has a stable outlook for India, which reflects its expectation that India’s economy will recover following the resolution of the COVID-19 pandemic, and that the country’s strong external settings will act as a buffer against financial strains despite elevated government funding needs over the next 24 months.
Twenty of the 21 sovereign ratings in Asia-Pacific have stable outlooks, reflecting rating cushions that could absorb likely pressures in the next year or so.
The rising prices and the possibility of a global recession present the biggest risks to Asia-Pacific sovereign ratings in the second half, and beyond, it added.
“The unexpected acceleration of global interest-rate increases has not triggered large capital outflows from the region so far. The strong growth prospects for key economies and their generally strong external balance sheets likely help. Nevertheless, if global growth prospects dim much further and geopolitical tensions escalate seriously, a greater financial hit on regional markets is possible,” said analyst Anthony Walker.
Meanwhile, earlier this week, amid recession worries in some of the global economies, brokerage Nomura slashed India’s growth projection for 2023 to 4.7 per cent from 5.4 per cent.
“India’s economy is racing above its pre-pandemic level, led by a recovery in the services sector and supported by the lagged effects of easy financial conditions and a public capex push. The improvement has been broad-based across consumption, investment, industry and external sectors. “However, exports have started to struggle and elevated imports are pushing up monthly trade deficits to record highs,’’ a note by Sonal Varma and Aurodeep Nandi said.
There are rising medium-term growth headwinds from higher inflation, monetary policy tightening, dormant private capex growth and most importantly, the global growth slowdown. Therefore, Nomura expect a lower growth rate in 2023.
For the current fiscal year, Nomura estimates the real GDP growth at 7 per cent while it is expected at 5.5 per cent for 2023-24.
Nomura said that in spite of recent government measures to combat inflation, the inflation outlook continues to be elevated due to higher input costs, pressures associated with reopening services, and higher input costs.