Singapore — Moody’s Investors Service says that the strengthening in global demand since the end of last year has buoyed Asia Pacific’s trade-reliant economies, but that faster export growth has yet to feed into a broader and more sustainable acceleration in output growth.
Support to sovereign credit profiles will be strongest where the export upturn combines with structural reforms and investment in infrastructure.
Moody’s conclusions are contained in its just-released report on sovereigns in Asia Pacific, “Export-led upturn largely benefits sovereigns that implement structural reforms.”
The world’s biggest economies are recovering at the same time, giving a boost to trade. Among them, China and Japan have been contributing to the global pickup, supporting regional demand.
The acceleration in growth in Hong Kong (Aa2 stable) and Malaysia (A3 stable) looks to be more broad-based than in other trade-dependent economies, reflecting in part the strength of public infrastructure spending.
In the event that solid external demand persists and ongoing government infrastructure spending supports a further wave of investment by private businesses, that could mean that growth there slows less in 2018 than we currently expect.
However, some of those Asian economies that do not benefit from the pickup in global demand, such as Thailand (Baa1 stable), might end up depending on additional fiscal stimulus to support their economies.
Trends in gross fixed capital formation have differed markedly among the region’s trade-dependent economies, suggesting that some businesses have started to invest in new or replacement equipment and facilities, while others are still using existing idle capacity to meet increased demand.
On the back of signs that global growth is likely to remain robust through 2018, Moody’s has raised its GDP forecasts for a number of Asia Pacific economies. If solid external demand and robust domestic conditions combined to sustain business investment, that would further boost the medium-term growth outlook for the economies in question.
The positive economic impact of India (Baa3 positive) and Indonesia’s (Baa3 positive) measures to attract higher levels of foreign direct investment, combined with steps to improve business conditions, is likely to be more apparent in a stronger global macroeconomic environment.
Similarly, the global upcycle will amplify improvements in business operating conditions in Vietnam (B1 positive) that have already attracted investment and helped production move up the manufacturing value chain.