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Asia Pacific Outlook Ė China Sets the Trend for 2013

Asia Pacific economies weathered the global downturn and appear in good shape for 2013. Low risk and good policies will drive a steady growth in the regionís GDP. As the largest economy in the region and a major player in global trade, what happens in China will greatly impact the course of events this year.

Last year ended with a good fourth quarter, with Asia Pacific markets enjoying mostly stable GDP growth and healthy inflation rates. Looking forward, good domestic and fiscal policy settings around the region lay the ground for a business-friendly environment, especially with stable governments encouraging reform and improved infrastructure. With the mainlandís recent leadership handover transpiring smoothly, much of its recent predecessorís policies will continue as before, focusing on reforms in the financial sector, combating corruption and increasing consumer demand.

ASEAN economies continue to excel due to supportive policies, low risks and strong domestic demand that helped to weather the global downturn. Malaysia, the Philippines and Indonesia are experiencing robust growth. India is picking itself up from the economic woes and political instability of previous years and steadily improving business confidence with a new finance minister, the withdrawal of an inflexible coalition partner and a series of pro-business reforms. Japanís situation is the least favourable as it is still dealing with repercussions of the 2011 earthquake and tsunami, the global downturn, the loss of its technological edge and fierce competition from Chinese and Korean manufacturers - not to mention geopolitical disputes with China that could hurt tourism, confidence and foreign investments. To put things into perspective, however, Japan is still the regionís second-largest economy and a major trading partner for the region.

As the largest economy in Asia Pacific, Chinaís performance greatly affects the rest of the Asian economies. It is the biggest trading partner and a major market for capital goods, commodities and electronic components from other Asian countries. Consumer demand from the mainland will continue to be robust and drive the need for more products. Chinese GDP is projected to be over 8% annual growth by midyear 2013 with a trend of steady improvement that began fourth quarter of 2012 and running through 2013. Countries such as South Korea and Taiwan, big exporters of capital machinery and electronic circuits and components to China, will likely expand as well by the end of 2013.

The biggest risks to Asia Pacific are from outside the region. The U.S. fiscal cliff is a global risk but one that is expected to be resolved eventually. Europeís sovereign debt crisis is worrying. If left unresolved, it would affect Asian economies with weakened exports, decreased foreign direct investments and worsening domestic sentiment.

With risks appearing to be at a manageable level and good policies driving the region, forecasts look healthy for most Asian economies in 2013. However, make no mistake - it will be Chinaís economy setting the pace for Asia.

China as a Key Trading Partner in the Asia Pacific Region

% of total exports  
  Share of exports to:
From:
U.S.
Euro zone
China
Australia
4
4
27
China
17
14
na
Hong Kong
10
8
52
India
11
14
6
Indonesia
8
9
11
Japan
15
9
20
Malaysia
8
8
13
New Zealand
8
7
12
Philippines
15
10
13
Singapore
5
7
10
South Korea
10
7
24
Taiwan
12
1
27
Thailand
10
7
12

(Sources: Moody's Analytics)

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