 "India on a rocky road, warns S&P")
Global rating agency Standard & Poor’s (S&P) has said the countries with the largest deficits — India and Indonesia — would face hardships in the near term.
“The road might be rocky in the near term, particularly for the largest-deficit countries — India and Indonesia. But we don’t think this is the Asian crisis all over again,” said S&P Asia-Pacific chief economist Paul Gruenwald.
In a report titled ‘South and Southeast Asian economies grapple with growth and external financing risks’, S&P said the market turbulence was partly driven by uncertainties around the timing of “tapering” by the US Federal Reserve, as well as by recent cuts in the growth forecasts for Asian countries, notably China.
“The financial markets appear to be in the midst of pricing in a different path for US monetary policy. During that process, we are likely to see bouts of volatility in emerging Asian economies, along with weaker currencies, lower asset prices and subdued sentiment and growth. But in our view, this is not a repeat of the 1997 Asian financial crisis,” the rating agency said in a release.
“The external positions for emerging Asian economies are much stronger. Also, the central banks are not defending their exchange rates. In addition, the increase in leverage over the past five years has been moderate in the economies with high external risks,” Gruenwald said.
“External financing risks arise from the financing mix of domestic investment and growth. The key metric here is the current account balance, which reflects not only exports-less imports of goods and services but savings-less investment.”
The savings of economies running current account deficits were insufficient to finance their investment and growth and, therefore, these needed to borrow from the rest of the world, the agency said, adding in times of normal risk appetite, this dependency might not be a problem.
However, when markets turned risk-averse, economies with current account deficits often faced external financing pressure, it said.
“The road might be rocky in the near term, particularly for the largest-deficit countries — India and Indonesia. But we don’t think this is the Asian crisis all over again,” said S&P Asia-Pacific chief economist Paul Gruenwald.
In a report titled ‘South and Southeast Asian economies grapple with growth and external financing risks’, S&P said the market turbulence was partly driven by uncertainties around the timing of “tapering” by the US Federal Reserve, as well as by recent cuts in the growth forecasts for Asian countries, notably China.
“The financial markets appear to be in the midst of pricing in a different path for US monetary policy. During that process, we are likely to see bouts of volatility in emerging Asian economies, along with weaker currencies, lower asset prices and subdued sentiment and growth. But in our view, this is not a repeat of the 1997 Asian financial crisis,” the rating agency said in a release.
“The external positions for emerging Asian economies are much stronger. Also, the central banks are not defending their exchange rates. In addition, the increase in leverage over the past five years has been moderate in the economies with high external risks,” Gruenwald said.
“External financing risks arise from the financing mix of domestic investment and growth. The key metric here is the current account balance, which reflects not only exports-less imports of goods and services but savings-less investment.”
The savings of economies running current account deficits were insufficient to finance their investment and growth and, therefore, these needed to borrow from the rest of the world, the agency said, adding in times of normal risk appetite, this dependency might not be a problem.
However, when markets turned risk-averse, economies with current account deficits often faced external financing pressure, it said.