India and Southeast Asian economies to expand 5.4% from 2023-2026: S&P Global

The world economy will expand at 3.2 percent, according to the agency

The combined economies of India and Southeast Asia expand at an annual rate of 5.4 percent between 2023 and 2026, compared with 3.2 percent for the world, according to S&P Global Ratings.

“Together, these countries had a nominal GDP of $6.4 trillion at the end of 2002; if it were a single country, it would be the third largest economy in the world,” read the statement from the rating agency.

Panelists, at a virtual conference hosted by the agency, discussed whether Asia’s emerging market (EM) outperformance can endure in the face of heightened external stresses, including inflation and global rate hikes.

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“Indirect risks could arise,” said Eunice Tan, Asia-Pacific’s head of credit research. “Beyond being caught in the crosswinds of a global out of sync economy, Asia’s emerging markets are also exposed to geopolitical tensions, climate pressures and technological disruption.”

Despite this, analysts from the rating agency believe that the economies of India and Southeast Asia will grow at a faster rate than the world.

The drivers for this will be various, they noted, including “robust domestic demand in India” and expanding trade bases in countries like Vietnam. Domestic financing capacity has been strengthened in some cases, providing alternatives to the high costs of financing in US dollars, the panelists added.

That said, risks remain “elevated” with global debt at a record high.

“Global debt as of March 2023 is a record $305 trillion, or almost a fifth more than in 2007, before the global financial crisis,” the agency’s statement read. Analysts estimate that interest expenses alone have increased by $4.8 trillion since the US Federal Reserve and the European Central Bank began raising policy rates to combat inflation.

“It’s obvious that with inflation, higher interest rates and geopolitical tensions, the operating environment is now less stable,” said Terence Chan, principal investigator at S&P Global Ratings.

In Asia, entities rated by the agency have seen the default rate double to 1.3 percent due to tighter financial conditions and the property recession in China. The 18 defaulted issuers were predominantly on low speculative grade ratings.

The ratings agency’s economists believe that if China’s recovery drags on, the government could engage in “major stimulus to speed things up.” His estimate that the country’s economy will expand 5.2% this year and 4.7% in 2024.

In the medium term, ongoing technology and trade tensions could reduce China’s scope for productivity gains, a major driver of growth, they said. That said, they believe the country’s growth will continue to outpace the Western world for decades to come.

“We are not in the ‘China Peak’ field,” Kuijs said. “Given the combination of its large size and strong growth, China’s economy will continue to be a major driver of global growth.”