S&P sees Asia-Pacific rebounding in 2010

Warns inflation, exit strategies remain critical

AFTER A DIFFICULT YEAR, things are looking up for most Asia-Pacific economies, including the Philippines.Ratings firm Standard and Poor’s said all its rated economies in the region were expected to post positive GDP growth in 2010.

However, it said concerns and challenges remain—inflation is an issue for some while the questions of when and how to exit from expansionary monetary and fiscal policies are critical for all.

S&P’s new report, “Asia-Pacific Economic Outlook Q4 2009: Exit Strategies and Inflation are Main Issues for 2010 as Region Recovers,” was written by Dharmakirti Joshi, director and principal economist of S&P unit CRISIL Ltd.

Joshi reviewed the quarterly performances of Australia, New Zealand, Japan, China, India, Hong Kong, Singapore, Korea, Taiwan, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.

“Although all economies are now performing better than expected, the extent of recovery varies across the region,” Joshi said. “Policy focus is gradually shifting from managing the crisis to managing the ongoing recovery.

A critical challenge for all economies is how and when to exit from expansionary monetary and fiscal policies in a way that secures recovery. Most countries are likely to begin by exiting monetary easing, then gradually withdraw fiscal stimulus.”

The report identified which countries were likely to exit monetary easing first.

“We need to look at how quickly economies are bridging output gaps and whether or not inflationary pressures are emerging. If we simply equate pre-crisis GDP growth rates with potential growth, then China, India, Indonesia, Australia, and Vietnam are closest to achieving their potential. Of these, the central banks of Australia and Vietnam have already raised interest rates,” Joshi said.

“Just as Asia-Pacific is leading the world in economic recovery, so too will it lead the exit strategy. In our opinion, the coming year will see all Asia-Pacific economies adopt a tightening stance in one form or the other,” he added. –Philippine Daily Inquirer