Asia has unfinished homework: S&P
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Although Asia's trade and current account surpluses have declined recently, the evidence is mixed on whether the indicators have improved for the right reason, according to Standard & Poor's Ratings Services. In its report on "Asia's Unfinished Homework:
Paul Gruenwald, chief economist for Asia-Pacific, said China often gets the lion’s share of the blame for Asia’s surpluses.
”When the indicators in Asia are scaled by GDP, we see that size matters,” he said. “It’s easier for a small economy to run a large surplus or deficit, and the ‘big guys’ don’t look so dominant when we scale the data.
“If we scale China’s current account and foreign currency reserves by GDP, the country doesn’t appear so uniquely guilty of generating the types of macroeconomic outcomes typically associated with the conventional wisdom about Asia’s contribution to global imbalances,” he said.
Asia’s unfinished homework is to rebalance to a more consumption-driven economic model.
“Note that it isn’t about simply consuming more. Consumption has been trending higher in all the economies in our sample. The key is for private consumption to grow faster than GDP. Only then will the consumption-to-GDP ratio rise,” he said.
