The Asia-Pacific (APAC) region exhibited a decline in its overall risk score during the second quarter (Q2) of 2023, dropping from 42.4 in Q1 to 41.7, establishing itself as the second-lowest risk region globally, per the Q2 2023 GlobalData Country Risk Index (GCRI). However, a rising economic parameter risk score signals ongoing challenges within the region, primarily linked to China, says GlobalData, a leading data and analytics company.

Puja Tiwari, Economic Research Analyst at GlobalData, comments: “The robust growth in APAC during the first half of 2023 has been driven by emerging and developing economies, fuelled by increased domestic activity, heightened investments, and a resurgence in tourism. Countries like India, the Philippines, and Vietnam are displaying strong economic growth, signaling a positive regional outlook.”

However, despite an overall decrease in risk across the APAC region, the economic parameter risk score increased from 41 in Q1 to 42.7 during Q2 2023. The ongoing turmoil in China’s real estate sector, marked by significant losses among major developers and economic challenges, has far-reaching implications for APAC.

Tiwari adds: “China, a regional economic giant, poses potential threats to neighboring economies. Its slowdown and waning consumer confidence may reduce demand for goods and services in countries like Australia, Hong Kong (China SAR), Taiwan, Indonesia, and Japan, highly dependent on Chinese trade. Growing defaults and credit risks in China’s banking sector also loom as risks for APAC’s financial markets, potentially stirring economic challenges across the region.”

In the 21st update version of GlobalData’s “Global Risk Report Quarterly Update – Q2 2023,” which evaluated 32 countries in the APAC region, eight countries were identified in the very low-risk zone, two countries in the low-risk zone, 14 countries under manageable risk, five countries under high risk and three countries in the very high-risk zone.

Tiwari continues: “As of September 2023, GlobalData forecasts Asia-Pacific nations to be the primary drivers of worldwide economic growth, accounting for approximately 60% of the global expansion. However, this represents a reduction from the earlier projection in June 2023, where the APAC region was expected to contribute 70% to the global growth. This downward revision primarily stems from uncertainties surrounding China’s economic outlook and its potential impact on the broader Asia-Pacific area.”

Turkmenistan, Myanmar, Pakistan, Laos, and Bhutan were the highest-risk nations in APAC in the Q2 2023 GCRI update. On the other hand, Singapore, Taiwan (Province of China), New Zealand, Hong Kong (China SAR), Japan, and South Korea were on the list of the top 15 lowest-risk countries worldwide in the GCRI Q2 2023 update.

Despite the potential risks associated with China’s economic slowdown, the APAC region is poised to outperform others, projecting a 4.5% growth in 2023, surpassing the previous year’s 4.0%. This growth is primarily driven by India’s dynamic economic expansion and expected growth rates exceeding 5% in other developing nations like Vietnam, the Philippines, and Bangladesh, positioning it as the fastest-growing region.

However, there are other looming concerns, such as elevated policy rates, a humanitarian crisis in Myanmar, escalating disputes in the South China Sea, economic challenges in Sri Lanka and Pakistan, and environmental disasters associated with El Niño, such as floods, dengue outbreaks, and tropical cyclones, which may hinder development prospects.

Tiwari concludes: “As we navigate through 2023, the global economic landscape is undergoing significant transformation, with the Asia-Pacific region emerging as a dynamic engine of growth. This shift is attracting investors, driven by factors such as declining inflation rates and strategic economic initiatives, which are laying the groundwork for prosperous years ahead.”