“Asia-Pacific (APAC) sovereign Outlooks are mostly stable, with adequate financial buffers and policy space to support domestic demand but still the APAC sovereigns face a challenging year as slowing global growth and trade policy uncertainty weigh on exports and economic activity” -Fitch Ratings
Crux of the Matter
APAC sovereign ratings span a broad range of developed, emerging and frontier markets. This is reflected in the dispersal of ratings from ‘AAA’ to ‘B-‘. The prevalence of stable rating outlooks indicates that the broad distribution is likely to remain intact over the next 12-18 months.
Virtually all Fitch-rated APAC sovereigns have seen a slowdown in growth in 2019, and many will see a further decline in 2020 under our baseline. This typically reflects the impact of US-China trade tensions and slower global demand. But country-specific factors are also at play. India’s slowdown is being driven by a domestic credit crunch, for example.
The region nevertheless is proving economically resilient. Southeast Asian economies benefit from robust consumption and favourable demographics, while a few have gained from trade and investment diversion. More broadly, policy stances are supporting growth with fiscal space being utilized as room for further monetary stimulus is shrinking.
Plans for fiscal easing vary from modest loosening to accommodate automatic stabilisers as in Indonesia, Malaysia, and India, to more aggressive expansionary measures in South Korea and China. China’s tax cuts and infrastructure spending, financed with local government special bonds, have so far helped the government avoid less transparent forms of stimulus that could be negative for the rating.
Most APAC sovereigns have debt-to-GDP ratios at or below rating category means, but there are a few exceptions, including Japan, where we think the authorities might embark on more aggressive stimulus.
Curiopedia
Trade protectionism has been accompanied by slowing global capital flows. No Emerging Asia sovereigns are on Negative Outlook, but several APAC frontier markets face challenges posed by low reserves and high external debt repayments. Vietnam and Thailand are on Positive Outlook, while Hong Kong is the only APAC sovereign on Negative Outlook owing to the effects of continuing protests on the business environment and the territory’s reputation as a stable business hub. Political and geo-political factors will be relevant in 2020. Relations between the Chinese Mainland and Taiwan could be affected positively or negatively by Taiwan’s Presidential elections in January, for example. More info
Curated Coverage
Comments