(June 24): Asia Pacific exporters and emerging markets are outperforming amid solid domestic and external demand, S&P Global Ratings said, but flagged weakening pace of economies more sensitive to higher rates.

Better export growth will lead to higher gross domestic product growth this year in Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam, S&P said in a note written by Louis Kuijs and Vishrut Rana. Other economies should also benefit from stronger exports this year, they said.

Malaysia’s economy is projected to expand 4.3% this year and 4.5% next year, according to S&P. In other Asian emerging markets, solid domestic demand and a pick-up in exports should drive robust growth, with the Philippines and Vietnam projected to expand almost 6% and Indonesia by about 5%, it said.

All in all, the Asia-Pacific ex-China and Japan region is expected to grow 5.1% in 2024 and 5.2% in 2025 compared with 5.4% in 2023, S&P said.

Growth of Asia Pacific is holding up, led by emerging markets, amid recovery in global trade. However, elevated interest rates as central banks seek to tame a spike in inflation rates have dragged on economic growth.

In trade-dependent economies, the export recovery has supported GDP growth in early 2024, especially in Hong Kong, Malaysia, South Korea and Thailand.

In Asian emerging markets, tighter monetary policy has not significantly affected the solid domestic demand growth, S&P said. “This is largely because monetary policy transmission mechanisms are different and weaker in these economies,” it said.  

Exports are seeing recovery extending from the northeast Asian semiconductor shipments to other sectors and economies, with rising export volumes in China and several Southeast Asian countries, S&P highlighted.

“We expect global demand growth to increase materially this year, in part because of an end to destocking in major economies,” S&P said.

Meanwhile, the impact of higher interest rates and or both inflation on household spending has mattered more in developed economies driven largely by domestic demand, S&P said.

In Japan, household consumption has been weak as inflation dragged down real incomes, S&P noted. In Australia and New Zealand, elevated interest rates and inflation have weighed on consumption and investment, it said.

The prospects of higher-for-longer US policy rates means less easing in Asia-Pacific, weighing on domestic demand, S&P added.

https://www.theedgemarkets.com/node/716503