China could overtake Japan as Asia-Pacific's largest economy

Singapore - Chinese CurrencyChina could overtake Japan as the largest economy in the Asia-Pacific region and second-largest globally within the next five years, Standard & Poor's Ratings Services said on Monday.

Although Japan is currently the region's largest economy, Standard & Poor's predicted China will lead Asia-Pacific sovereigns in economic growth this year, followed by India.

Highlighting the key quantitative features and trends, credit analyst Yee Farn Phua forecast "regional growth dynamics to be less robust in 2008," with an unweighed average growth rate among 22 sovereigns of about 5 per cent compared with 5.8 per cent in 2007.

"A slowdown in the US economy and tight global credit conditions will hit the Asia-Pacific region but these concerns are partly mitigated by the expected stronger domestic demand and intraregional trade that should substantially counter the weaker US import demand," Yee said.

Inflation across the region is likely to remain high, the report noted. Driven by a demand-side oil shock, escalating food prices, and China's unwavering appetite for commodities, even countries such as Singapore with historical inflation rates of about 1 per cent are expected to tip the 5 per cent mark for the first time, the report said.

"Topping the league is once again Sri Lanka, which has the dubious honour of having the highest inflation among Asia-Pacific sovereigns for three years running," it noted.

On the fiscal front, "Sri Lanka overtook Japan as the biggest net debtor in the region in 2007," Phua said. The two "feature among the most indebted governments globally."

In terms of external positions, about half of the Asia-Pacific sovereigns have public and private sector assets greater than their total external debt including nonresident deposits, the report said. (dpa)