Investment recovery in Asia still fragile: S&P

“One of the main results of our analysis is that for most of Asia-Pacific, changes in global financial risk appetite matter more to regional investment outcomes than changes in real external demand,” Vincent Conti, an S&P economist, said yesterday.
“Our results suggest that, despite the expected improvement in global growth prospects, the current bout of global risk aversion may temper investment growth in Asia-Pacific.”
S&P’s report on “Investment Drivers in Asia-Pacific: Global Financial Risk Appetite May Matter More Than External Demand” delves deeper into the factors influencing Asia-Pacific investment by focusing on the responsiveness of cyclical investment to external shocks on the real – goods and services producing – and financial sectors.
Southeast Asian economies’ large and young labour force, rising incomes and renewed push to further private and public investment allow these economies to grow at reasonable rates despite global economic shocks.
Growth in the more export-dependent, newly industrialised economies of South Korea, Taiwan, Hong Kong and Singapore tends to suffer when global economic activity slows. This is given the dominance of high value-added consumer and capital goods in the economies’ production base, which are in highest demand in the advanced economies.
“It is important to distinguish real sector factors from global risk sentiment because financing needs, foreign holdings of local securities and depth of financial markets vary across Asia-Pacific,” Conti said. “Sudden shifts in global investor sentiment could dramatically influence funding costs through capital flows, possibly affecting the real economy.