Regional integration helps Asia to cope: S&P

S&P forecasts average gross domestic product (GDP) growth in Asia to be around 5-5.5 per cent this year and 5.1-5.6 per cent next year - propelled by its two economic powerhouses, China and India.

That is about a half to a full percentage point lower than growth of around 6.1 per cent in 2006. The forecasts include Japan and Australia.

S&P Asia-Pacific chief economist Subir Gokarn said China and India would continue to grow at a fast pace of about 8 per cent or higher in the next two years.

"This provides the region will enormous momentum," Gokarn told a teleconference. "This momentum will help sustain a positive growth environment for Asia-Pacific as a whole."

He pointed out that greater integration was helping Asia make use of economic opportunities in the region.

This greater integration is reflected in a growing number of trade and commercial agreements entered into by these countries.

At the end of last year, the 14 Asia-Pacific countries that S&P rates were signatories to more than 60 of such agreements, of which around 36 were with each other, he said.

The region, however, faces risks, and these include a prolonged US economic slump and rising fuel and food prices.

Inflation has emerged as a significant threat to the region and cast doubts on the ability of the region's central banks to engineer interest rates to stimulate domestic demand.

"One way that Asia would be able to ward off the impact of a US recession is by cutting interest rates. But with inflation where it is, that is very unlikely, almost impossible, at this point," Gokarn said.

For Thailand, S&P forecast real GDP growth at 4-4.5 per cent for this year, accelerating to 4.3-4.8 per cent next year. In contrast, no other country among the six in Asean that S&P provided forecasts for was expected to perform under 5.3 per cent this year.

Inflation is expected to stay flat at 2.8-3.3 per cent for both years.