In its report issued on Thursday, the rating agency said a gradual slowdown in growth globally, exacerbated by trade tensions between China (A1 stable) and the US (Aaa stable) -- notwithstanding the phase one trade deal – would constrain the credit quality of rated sovereigns in AsiaPac.
"Despite the phase one deal, the prospect of the US and China agreeing on long-term issues like industrial policy, intellectual property and market access remains highly uncertain. As a result, the US-China trade relationship will remain a source of uncertainty and volatility in 2020," Martin Petch, a Moody's vice president and senior credit officer, said.
These trade frictions will spread via global supply chains, and AsiaPac sovereigns embedded in global supply chains such as Hong Kong (Aa2 negative), Korea (Aa2 stable), Malaysia (A3 stable), Singapore (Aaa stable) and Thailand (Baa1 positive), along with Vietnam (Ba3 negative) to a degree, would be impacted as a result.
“Weakening trade is also curbing investment, which if sustained, will further reduce potential growth and amplify long-standing structural challenges including fiscal vulnerabilities and demographic change.
"In AsiaPac, trade tensions are no longer simply exacerbating the global slowdown in trade volumes. The shock is now also extending to investment, with businesses putting off their expansion plans amid economic, political and policy uncertainties, which will hurt income growth, competitiveness and productivity in the long run," Petch said.
On average across AaisPac, Moody's forecast GDP growth of 4.0% in 2019 to 2021, slower than 4.4% over 2014 to 2018, but still robust by global standards.
Moody's pointed out the erosion of fiscal positions as governments try to buffer against external and domestic growth shocks will be a risk for some sovereigns.
For governments such as India (Baa2 negative), China, Pakistan (B3 stable) and Sri Lanka (B2 stable), slower growth prospects will increase restrictions on fiscal space, further limiting the capacity of the authorities to support their economies.
A few, including Hong Kong, Korea and Singapore, have much more fiscal flexibility.
“In addition, weaker growth will compound structural challenges in the region, which range from rapid ageing, to creating enough jobs for large and growing young populations in places like the Philippines (Baa2 stable), Indonesia (Baa2 stable) and Malaysia.
“Amid heightened unpredictability, AsiaPac's frontier markets are vulnerable to any sudden shift in investor appetite, ” it said.
Source: The Star