China's economy is likely to fall short of its full year growth target of 7.5%, but Japan should rebound after contracting in the second quarter, Moody's Analytics has said in a report.
Asian economies usually rely on exports to drive growth, but now domestic policies spur demand against a backdrop of modest global growth, stable financial markets and lower economic risk.
Thailand is witnessing political uncertainty weighing heavily on its economic performance while the cyclical upturn in India will ease the new Prime Minister Narendra Modi's initiatives, the research firm said.
In China, the flow of credit has slowed, asset and consumer price growth has cooled, and the real economy is starting to waver.
Imports, retail sales, industrial production and fixed‐asset investment were all below expectations in July.
Moody's expects the full‐year growth to be at 7.4% in 2014 and 2015 and indications of cooling have already prompted a modest easing in policy.
Pressures on Chinese growth will also impact its major trading partners like South Korea and Australia, two countries with a large share of their exports to the world's second largest economy.
The 1April tax hike had distorted Japan's economy as there was an immediate drop in consumer spending after a spike in the first quarter, which was because of consumers bringing their spending forward prior to the tax hike.
Japanese consumer demand is expected to increase in the third quarter, but it will not be a strong rebound as real wages continue to fall and sentiment remains relatively weak.
In addition, there are increasing signs that the construction cycle has now turned.
Thailand vs India
The political crisis in Thailand was previously not expected to affect the prospects of doing business there, but the outlook has now changed.
"The current impasse has no end in sight and has impeded the military‐led government's ability to make spending decisions," Moody's said.
The Thai economy will contract around 0.5% this year while potential growth is close to 4%, the research firm estimates, adding that the difference is almost entirely due to politics.
At the same time, an improving economy coupled with a strong electoral mandate provides an ideal platform for India's Modi from which he can implement his reforms agenda.
The economy is in the early stages of a cyclical upturn, albeit a slow one, after GDP growth languished below 5% for the better part of two years.
Even without much government help the economy should grow by around 5% this year and close to 6% in 2015.