Asia Pacific Economic Structure

As economies all over the world are trying to find a firmer footing in a fragile recovery in 2010, creditworthiness of a nation has come under intense scrutiny. The main concerns of countries include debts from fiscal stimulus measures, risk evaluation and assessments, and managing growing liabilities. In the Asia Pacific region, fiscal and monetary support from governments has helped countries avoid further recession. The overall Asia Pacific economic structure weathered the crisis better than most other regions, which is attributed to the region’s fiscal policies.

As economies all over the world are trying to find a firmer footing in a fragile recovery in 2010, creditworthiness of a nation has come under intense scrutiny. The main concerns of countries include debts from fiscal stimulus measures, risk evaluation and assessments, and managing growing liabilities. In the Asia Pacific region, fiscal and monetary support from governments has helped countries avoid further recession. The overall Asia Pacific economic structure weathered the crisis better than most other regions, which is attributed to the region’s fiscal policies. Here is Standard and Poor’s take on APAC price inflation, government balance, and other data for 2009 and 2010 forecast (data in percentages).[br]

 

 

 

	Real GDP Growth		Consumer Price Inflation		General Government Balance (% of GDP)		Current Government Balance (% of GDP)
Country	2009	2010f	2009	2010f	2009	2010f	2009	2010f
Australia	0.9	3.0	1.8	2.6	2.3	4.7	4.3	4.3
China	8.7	9.3	0.5	2.0	3.4	3.4	5.9	6.5
Hong Kong	3.5	3.5	0.5	1.5	4.0	1.5	6.4	6.6
Indonesia	4.3	6.0	5.3	6.4	0.8	1.2	0.8	1.1
Japan	5.5	1.2	1.3	1.0	10.4	10.1	2.8	3.4
South Korea	0.2	4.1	2.9	3.2	2.5	0.5	3.8	1.4
Malaysia	2.7	3.5	0.6	2.9	8.0	7.7	14.0	14.6
Philippines	1.0	3.5	3.9	4.5	3.5	1.0	3.2	3.5
Singapore	2.0	4.0	0.0	2.5	2.0	3.0	10.2	15.0
Thailand	3.4	3.3	1.2	1.5	1.9	0.8	6.3	3.6

 

Looking into 2010, some APAC countries that can have fiscal challenges are Japan, India, Taiwan and Vietnam. Japan, for example, faces a number of fiscal challenges such as deflation, aging population and a high debt burden. India’s economy continues to grow, and its domestic markets have so far been able to absorb additional debt. Malaysia has an ambitious budget for FY 2010 which aims to cut the deficit substantially. Taiwan had injected fiscal stimulus to support recovery programs; it is, however, facing structural revenue imbalances. Although Vietnam appeared to have faced the downturn with minimal damage, the country potentially faces high trade deficit and inflation. This has put Vietnam’s currency under tremendous pressure, leading the government to devalue the dong in November 2009.

Asia Pacific Economic Structure: Possible Risks

• Domestic demand: Though consumer spending has improved in some APAC countries, most economies are facing contraction in consumption due to job losses in manufacturing and export-dependent sectors.[br] 

• Tight financial conditions: Despite improvements in liquidity, private lending rates remain on the higher side, and financial institutions consider high credit risk when lending to businesses and households. 

• Capital flows: Due to volatility in the US and other developed markets, FDIs are still low in the APAC markets. FII inflows are still risky and are reducing the region’s access to foreign capital. 

• Deflation: More than required manufacturing capacity, rising unemployment and contracting domestic demand in many countries are causing deflationary pressures. China, Hong Kong, Malaysia, Singapore, Taiwan, Thailand and Japan are in technical deflation. This trend is expected to persist till 1H 2010.