India to drive Asia growth in 2005: S&P

Global ratings firm, Standard & Poor's (S&P) today said India will continue to grow, even as most other Asian economies are expected to slow toward their medium-term trends in 2005.

Perhaps China and Indonesia could also be exceptions to lower growth in 2005, said S&P's credit analyst Ping Chew, speaking at an Asian Development Bank meeting in Istanbul.

He said global economic and financial conditions still support Asian growth and credit quality, despite rising interest rates and oil prices, and a weakening dollar. Nevertheless, a less benign environment may present several risks to the generally positive outlook for the region.

"Chief among the risks will be the speed of interest and exchange rate adjustments, and duration of sustained high oil prices. A combination of these adverse external developments could affect growth prospects, inflation trends, budgetary outturns, and the balance of payments, he said.

"Even if these risks do not materialise, a more cautious policy stance by Asian governments could induce a hiatus to the reform and consolidation process," Chew noted.

In particular, policy orientation could be more growth-focused, with restructuring taking a backseat. Fiscal consolidation could also be delayed.

Correspondingly, the positive rating trends for Asia sovereigns might moderate in 2005, compared with the previous two years.

S&P does not expect tightening global liquidity conditions to choke off economic activities. However, the medium-term credit outlook would be linked to the process of resolution of economic and financial imbalances triggered by the US twin deficits, which are currently financed mainly by Asian central banks.

Specifically, a rapid US dollar decline and spiking interest rates could deliver a major global economic and financial shock.

Short of this scenario, most Asian sovereigns are generally likely to be able to sustain any developments thanks to their external strengths, including high foreign exchange reserves and low external debt.