Report: Asia rebound to be slow despite encouraging signs

Singapore - International ratings agency Standard & Poors (S&P) said Tuesday the worst of the economic downturn might be over for the Asia-Pacific region, but chances for a rebound in real demand growth were slim. 'The worst of the economic dislocation in Asia-Pacific appears to be over, if recent indicators are to be believed,' said a report by S&P released Tuesday in Singapore. Positive signs included stock markets bouncing back from their 10-year lows and commodities prices having partially recovered. But the appearance of stabilization had been won at substantial financial costs, as governments dedicated huge amounts of resources to shore up their economies, the report said. 'If private sector demand cannot recover by the time governments' capacity to provide economic support weakens, a renewed deterioration cannot be ruled out,' it warned. 'Prospects of a rebound in real demand growth are not promising,' S&P added. As governments had spent large sums to spur their economies, the average general government balance in Asia-Pacific would deteriorate to negative 4.2 per cent in 2009, from minus 1.8 per cent for the previous year, with government debts increasing correspondingly. Economies like Australia, China, Hong Kong, Singapore or Malaysia 'should be able to take on higher debt without a materially adverse impact on their creditworthiness,' the report said. 'But for others, such as India and Taiwan, fiscal pressures will weigh on their credit quality going forward.' Although the banking systems in the Asia-Pacific region had not suffered comparable damage to banks in the USA or Europe, the region suffered from the turmoil in the global economy, showing steep declines in exports and hefty contractions in economic output. 'In the next year or so, corporate defaults will likely rise as a result,' the report said. 'The pressures will mount on banking systems in the region, particularly those that are highly leveraged.' However, even in a scenario in which the global economy remained weak for a few years, S&P said it did not expect a decline in the creditworthiness of Asia-Pacific countries in most cases. 'Nevertheless, economic pressures often trigger other negative developments, such as social unrest or political turmoil, or reinforce existing developments that have a negative credit impact,' the report said.