Emerging Asia slowdown normalisation of growth rates, not “uncontrolled collapse” – Fitch

Emerging Asia’s real GDP growth should slow to 6.3% in 2016 as regional economic pressures continue to add to a challenging outlook, Fitch Ratings said in a report, but added the slowdown is a normalisation of growth rates and not an uncontrolled collapse thanks to effective policy responses and sovereign buffers .

A hard landing in China is unlikely, and growth in India and in ASEAN should pick up, Fitch’s latest Global Economic Outlook said, forecasting that emerging Asia would remain the fastest-growing emerging markets region in 2016.

It forecast global growth to pick up slightly in 2016. Issues linked to lacklustre trade and investment growth remain, but major advanced economies such as the US, Eurozone, UK and Japan seem to have emerged relatively unscathed from the slowdown in key emerging markets in 2015.

“We forecast global growth to accelerate to 2.6% in 2016 and 2.7% in 2017, from 2.3% in 2015,” Fitch said.

In Asia-Pacific, the outlook remains challenging with added economic pressures from the continued slowdown in China’s growth, sluggish global trade growth, and an expected rise in US rates and resulting dollar strength, the report said.

The expected slowdown in emerging Asia, however, is likely to be driven almost entirely by China. Fitch forecasts Indian growth to accelerate to 8% in the fiscal year ending March 2017, while emerging Asia excluding China and India should grow by 5.2% in 2016, up from 5% in 2015, a Fitch statement added.

It said the one potential downside risk to regional growth could come from high private-sector debt, which is still rising. Four Asian emerging markets have the highest ratios of bank private-sector credit to GDP of any Fitch-rated emerging markets – China, Malaysia, Thailand and Vietnam. Upward pressure on regional interest rates stemming from the US may weigh on domestic demand in more indebted economies.

Fitch said it maintained its view that the China slowdown was part of a broader structural adjustment necessary to achieve a more sustainable growth pattern. “The data thus far from 2015 supports this picture, with weak exports and investments being offset by relatively robust consumption and a solid labour market. Importantly, the scenario of a very sharp slowdown in Chinese growth following the financial market volatility in the summer has not played out. This has reinforced the view that China is likely to muddle through during its structural-adjustment process – and avoid a hard landing.“

The Chinese authorities maintain significant resources and capacity to avoid a disorderly deceleration. Fitch has raised its forecast 2017 growth rate for China to 6% from 5.5%, based on the latest Five-Year Plan which suggests a growth target of 6.5% for 2016-2020.


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