Asia Pacific region’s economic growth to stay robust despite global risks – Moody’s
09 Jan 2023
The economic growth outlook for Asia Pacific (APAC) in 2023 is expected to be robust despite global risks, said Moody’s Investors Service.
The rating agency said APAC economies would be confronting a dynamic set of hurdles and support drivers.
“Growth will be lower than in 2022, but close to potential in most cases, underpinning broad credit stability.
“While growth in the region will slow after rebounding from the pandemic, it will remain strong compared with other regions,” it said in a note today.
Easing the last remaining pandemic-related border restrictions on leisure travellers and ongoing domestic reopening will sustain services-sector recoveries and catch-up consumption across the region, supporting key sources of employment, said Moody’s.
“Inflation will remain above recent averages as commodity prices stay elevated and output gaps close, but the most acute pressures will subside in many economies,” it said.
Moody’s said weaker export demand from the United States and European Union would drag on growth momentum for export-oriented economies such as China, Japan (A1 stable), South Korea (Aa2 stable), Malaysia (A3 Stable), Taiwan, China (Aa3 stable), Thailand and Vietnam (Ba2 stable).
It added that the Group of 20 (G20) leading advanced and emerging economies are expected to expand at 1.3 per cent in aggregate in 2023, down from its August 2022 forecast of 2.1 per cent, driven by high inflation.
In addition, China’s outlook would shape regional momentum given uncertainty about the economic impact of its relaxed COVID-19 policies and the potential for more protracted stress in the property sector.
Meanwhile, tighter financial conditions would hurt debt affordability for some, even as easing inflation slows the pace of rate rises, said Moody’s.
It said most central banks in APAC have not tightened policy as quickly as the US Federal Reserve and European Central Bank because of weaker demand-side inflation, and more significant fiscal steps to curb inflation such as fuel subsidies, consumption tax cuts and suspension of electricity tariffs.
“Negative credit effects will also be less pronounced for frontier and emerging markets with a significant degree of concessional financing, including Bangladesh (Ba3 review for downgrade) and Fiji.
“This includes those with deep domestic funding such as India, Malaysia and Thailand, where large institutional investor bases and banking systems have helped to anchor debt affordability,” it said.
Moody’s said debt burdens would continue to rise or stabilise at higher levels in countries such as India and Malaysia.
On currency, it said all emerging markets have foreign-exchange reserves that could cover more than three months of imports, although Bangladesh, Cambodia (B2 negative), Malaysia and Vietnam are positioned closer to that threshold.
It said China’s renminbi depreciation could competitively disadvantage other exporters such as South Korea, Malaysia, Thailand and Vietnam.