Emerging economies will be the stars of the Asia-Pacific region. Here's why

Asia-Pacific countries, led by emerging economies, continue to show resilience amid the downturn in the Chinese economy, according to the latest economic outlook by S&P Global Ratings.

"Outside of China, economies have generally held up well. Asia-Pacific continues to grow despite meagre support from external sources," says the report.

China's economic struggle to continue

China, the central figure of the region's economy, is still reeling from the downturn in the property sector. However, the report suggests that growth momentum has "slightly improved" because of policy support.

The world's second-biggest economy has announced several measures to support the property sector, constituting a quarter of China's economic output.

In addition, the Xi Jinping administration has also taken other steps to revitalise the larger economy, including approval of a $137 billion sovereign bond issue and allowing local governments to frontload part of their 2024 bond quotas.

However, more than these measures may be needed for China to escape the economic downturn.

The report predicts that China's economic growth will be 5.4 per cent in 2023. But it will fall to 4.6 per cent in 2024. Interestingly, these figures align with the International Monetary Fund's forecast for 2023 and 2024.

"Our GDP growth forecast for 2024 suggests the slack in the economy that is weighing on profit margins and prices in many sectors in China's economy will persist next year," notes the report.

Asia-Pacific region shows resilience.

While the overall picture is not rosy, the Asia Pacific region has been able to withstand the global economic slowdown.

The region is expected to grow by 4.7 per cent in 2023, just 0.1 per cent higher than the IMF forecast of 4.6 per cent growth.

Next year, growth is likely to fall to 4.4 per cent, according to the report.

Emerging economies are the region's stars, with India, Indonesia, Malaysia, and the Philippines standing out from the rest due to strong domestic demand.

"Growth this year and next is on track to be the strongest in emerging market economies," says the report.

It also notes that India will continue to grow by 6.4 per cent in 2024, remaining the fastest-growing emerging economy in the region.

Developed economies like Japan, South Korea and Taiwan have been able to withstand the downturn through robust labour markets and service sectors.

One big catalyst for these developed economies has been the surge in the semiconductor sector, which is likely to remain strong next year, too.

Nevertheless, growth in the Asia Pacific region will be the lowest among developed countries for two reasons: weak global trade and high-interest rates.

The larger outlook

The report says that risks remain for the Asia-Pacific region.

A lot will depend on the economic trajectory embarked on by China and Europe in 2024.

Any unexpected increases in inflation in the United States will force the Federal Reserve to continue with its tight monetary policy, exacerbating the pressure on Asian currencies and markets.

Geopolitical risks emanating from the Ukraine war and tensions in West Asia will likely continue impacting commodity and energy prices.

This will stoke inflation, increase external deficits, and trigger a domino effect on the world economy.

"Risks remain, but so too does the potential for growth in the region," the report ends on a positive note.