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APAC growth to remain healthy despite pockets of weakness: S&P

GDP levels in Asia-Pacific ex-China are expected to decelerate to 3.9% in 2023, down from 4.8% in 2022.

Asia-Pacific will be a bright spot in the global economy in 2023, according to S&P Global Ratings' report, "Global Slowdown Will Hit, Not Halt, Asia-Pacific Growth."

The report highlights the region's domestic resilience and solid growth in mainland China, which will help to keep regional growth at a healthy level.

"Beneath this overall resilience are significant pockets of weakness. Soft global demand will deplete growth in export-driven economies, such as South Korea and Taiwan," said S&P Global Ratings' Asia-Pacific Chief Economist Louis Kuijs.

GDP levels in Asia-Pacific ex-China are expected to decelerate to 3.9% in 2023, down from 4.8% in 2022, according to the report. The region is likely to face foreign exchange (forex) stress in 2023, but policymakers have so far managed currency strains effectively. However, the possibility of a currency crunch and capital flight may yet rattle one or more emerging markets in the region.

China's short-term outlook remains poor, according to Kuijs. "Organic growth remains weak amid persistent, widespread COVID disruptions," he said. "But growth should pick up in 2023 as the COVID stance and property downturn ease."

The global slowdown has also started to weigh on manufacturing activity and sentiment in Northeast Asian manufacturing export economies.

Inflation strains vary in Asia-Pacific but are generally less of a problem than in the US. Core inflation has risen especially fast in Australia, New Zealand, and the Philippines, and has also increased substantially in South Korea, whilst remaining high in India.

The report predicts a modest tightening of the Bank of Japan's monetary policy in 2023. Interest rates are rising faster in the US than in Asia-Pacific, which has pulled capital out of the region.

Net financial outflows rose by $127b in the first eight months of 2022 in six large Asian emerging market economies, compared to a year earlier, to $400b.

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