New Delhi: Asia-Pacific’s growth engine is expected to shift from China to South and Southeast Asia with India at the helm to see its gross domestic product (GDP) growing to 7% by 2026, according to a S&P Global Ratings’ credit analysis report that said, “China Slows, India Grows”.

As compared to India’s GDP growth rate at 7% by 2026, China’s economy will expand by 4.6%, the report analysing credit conditions of Asia-Pacific in the first quarter of 2024, said. It attributed deepening property sector woes and high debt levels for weakening the growth momentum for China.

The report, based on S&P Global Ratings’ Asia-Pacific Credit Conditions Committee that took place on November 21, said that there is a shift in regional growth pattern. “We project China’s GDP growth to slow to 4.6% in 2024 (2023: 5.4%), edge up to 4.8% in 2025, and return to 4.6% in 2026.”

The report recorded highest growth rate for India in the region. “We see India reaching 7.0% in 2026 (6.4%); Vietnam, 6.8% (4.9%); Philippines, 6.4% (5.4%); and Indonesia remaining steady at 5%,” it said.

The report pointed at global headwinds due to adverse geopolitical developments. “With Asia-Pacific’s central banks likely to keep interest rates high, the region’s borrowers will see costlier debt servicing. Concurrently, a widening conflict in the Middle East could drag global supply chains and raise energy costs, fanning inflation. High input costs dilute corporate margins, while high prices weaken demand,” it said.

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It said widening Middle East conflict could lead to energy risks and lowered its projection for the region’s growth (ex-China) in 2024 from 4.4% to 4.2%. “Asia-Pacific’s growth is susceptible to energy shocks (widening Middle East conflict) and slower global demand (risk of U.S. hard landing), it sad. The prospects for industries also differ, with export-centric manufacturing faring worse, it added.

“In the region, the key risk is disputes with China. A further reduction in supply chain reliance on China by Western and other importers could push up costs over the next few years, adding to inflation pressures. An escalation of international disputes over the seas and lands in the south and south-east China seas would damage economic activity,” it said.

Addressing a conference, Union finance minister Nirmala Sitharaman on Monday accepted that global headwinds are also affecting Indian economy adversely, but domestic strengths are supporting India’s high growth. India’s “large captive domestic market”, purchasing power of its “middle class”, and “stable policies” continue to drive its economic growth despite global headwinds and geopolitical challenges, she said. HT reported it on Tuesday.

India is one of the fastest growing major economies in the world. The International Monetary Fund (IMF) in its World Economic Outlook last month projected India’s 2023-24 GDP growth to be 6.3%, a 20-basis point increase from the July numbers. One basis point is one hundredth of a percentage point. The World Bank also retained India’s economic growth forecast for 2023-24 at 6.3% in its biannual review despite challenging external conditions.