The Asia Pacific region will lead a tepid recovery in the global economy, starting in the second half of 2009 as fiscal and monetary stimulus measures take effect, Standard & Poor's said on Thursday.

That growth momentum will be consolidated in 2010, when US economic growth – crucial to the region's exporters – returns to positive territory, said Subir Gokarn, the credit rating agency's Asia-Pacific chief economist.

"The combination of fiscal and monetary policy suggests stabilization and perhaps the beginning of a recovery toward the end of 2009," he said. "The revival of export demand by the US and to some extent in Europe will help to reinforce the positive impact of monetary and fiscal policy in the region."

Asian economies made a miserable showing in the last three months of 2008, thanks to the lagging effects of tight monetary policy and a broad slowdown in exports and capital flows, Gokarn said.

"By any yardstick it has been a significantly negative quarter," he said. "Virtually every macroeconomic indicator has moved sharply down."

Strong domestic demand in China and India and its positive spillover effects are likely to help pull the region out of its rut before demand rebounds in the US and Europe, Gokarn said. But he cautioned that a sustainable recovery in Asia won't happen until the world's largest consumer markets rebound.

"We do not expect those growth rates to return anywhere near the boom years of 2006 and 2007," he said.

S&P predicts that China's growth will slip to around 6.7 per cent in 2009, down from 9 per cent in 2008, while India will clock about 6 per cent growth this year, down from 7.5 per cent last year.

S&P predicts Singapore will contract by about 3 per cent this year, while Japan and Hong Kong will shrink some 2 per cent. Gross domestic product in South Korea and Taiwan is expected to fall by roughly 0.7 per cent.

Central banks in the region spent most of 2008 battling record-high prices of food, fuel, and other commodities by raising interest rates just as global growth was beginning to slow, Gokarn said. The threat of inflation began to wane in August, but the quick liberalization of monetary policy that followed probably won't be felt until the middle of the year, Gokarn said.

Finding new ways to finance growth as foreign capital flows wither also remains a challenge.

"To the extent that global financial markets are going to be relatively sluggish for the next year I would not expect too much activity in terms of emerging market investment activity in 2009," Gokarn said.

That is bad news for countries like India, whose economic boom was fueled in part by a rush of foreign investment. The Indian government was counting on the private sector to help fund infrastructure projects; now much of that money probably won't materialize, Gokarn said.

"The dependence on private sector foreign investment we were banking on for the infrastructure sector is now something we have to compensate for," he said.

That could lead to a revival of lending institutions like the World Bank and the Asian Development Bank and a fresh wave of privatization, as the government scrambles to find replacement funds, he said.

"We will have to find some way of substituting for the reduction in foreign savings," Gokarn said.