labels: Credit ratings
Four ASEAN economies show strong growth despite sinking US demand, says S&P report news
10 March 2008

Mumbai: The slowdown in the US and in the broader global economy will somewhat moderate growth in the ASEAN-4 economies (Indonesia, Malaysia, Philippines, and Thailand) in 2008, but strong domestic fundamentals will ensure that this has a limited impact, sxays a new report from rating agency S&P, ASEAN-4 Economies Show Strong Growth Despite Sinking US Demand.

"In 2007, the increase in exports to the intra-Asia region remained robust and offset the drop in exports to the US," said Standard & Poor's Asia Pacific chief economist Subir Gokarn.

"Relatively lower inflation and interest rates in the past two years, combined with increased incomes due to favourable terms of trade and healthy remittance inflows, have boosted domestic consumption and investment."

Expansionary fiscal policies will enhance this momentum in 2008-2009. Central banks' stance will shift between neutral and easing depending on how rapidly the region arrests its domestic food shortage problems.

In recent months, rising food and oil prices have emerged as a major source of inflation in the region. Pressures from rising incomes have also led to a rise in demand for food and oil.

The global oil price hike, weighing more on domestic oil prices since the removal or reduction of fuel subsidies, has resulted in higher transportation costs.

"Major risks to growth include a severe recession in the US or a more severe fall out of the financial crisis. Uncertainty with respect to oil prices and food supply shortages will threaten inflation and could likely hit private spending and investment, and therefore economic growth," Gokarn noted.

Central banks' primary objective, in the current scenario of appreciating domestic currencies, should be to protect price stability. Currencies are expected to appreciate further in 2008, although not as sharply as in 2007. Pressures emanate from the expected U.S. dollar weakness, local governments' measures to boost foreign direct investment, and possible impact from an appreciation of the Chinese yuan.


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Four ASEAN economies show strong growth despite sinking US demand, says S&P report