S&P lowers growth forecast for Asia-Pacific amid Covid-19, China uncertainty

THE Asia-Pacific growth outlook for the remainder of 2021 has weakened amid the persistent Covid-19 pandemic and uncertainties relating to the China market, according to a S&P Global Ratings report.

In a press release issued Tuesday, the credit ratings provider lowered its growth forecast for the region to 6.7 per cent from its previous projection of 7.5 per cent.

It also revised its 2021 growth forecast for China down by 30 basis points to 8 per cent, citing weak private demand recovery and increased near-term uncertainty.

"One downside and rising risk relates to a changing growth path in China," said Paul Gruenwald, global chief economist for S&P.

He added: "New regulations and policies are aimed at common prosperity and greater self-reliance through dual circulation, which mark a shift in China's growth strategy."

All eyes are now on how Beijing intends to handle the country's most indebted property developer, Evergrande, which temporarily averted a default on its coupon payment last Thursday.

China has in recent months also imposed massive crackdowns on the areas of private tutoring, technology, as well as cryptocurrency.

Despite its lower growth expectations, S&P believes the general outlook for the Asia-Pacific region is now stabilising as a result of a substantial increase in vaccination coverage and an increasing policy shift toward greater tolerance of Covid-19 outbreaks, especially in the emerging markets. This points toward a hope that economies could gradually reopen soon, in the agency's view.

While the report highlighted an uptick in core price inflation for economies such as China, Australia, New Zealand and India, it also noted that core inflation remained low in the rest of Asia due to lockdowns and resultant weakness in domestic demand.

S&P's growth forecast for South-east Asia's emerging markets has been adjusted down by 1.2 percentage points to 3.1 per cent.

Similarly, the agency has lowered its forecast for high-income Asia economies to 3.6 per cent from 3.8 per cent previously. This comes as S&P notes that international trade continues to support growth amid weakening domestic demand.

New Zealand and Singapore are the only economies that can expect to have faster growth in 2021 than the previous forecast in June, the report added.