Moody’s: Credit Conditions in Asia Will Be Stable in 2018 as Growth Remains Broad-based

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Singapore — Moody’s Investors Service says that credit conditions in Asia will be stable in 2018, supported by broad-based regional and global economic growth, a recovery in global trade, and broadly accommodative monetary policy.

Moody’s view is in turn reflected in its outlooks for the region’s sovereigns, and banking and corporate sectors, which saw increasing shares of stable and positive outlooks in 2017.

At the same time, various downside risks are apparent, including tighter
financing conditions, the threat of increased trade protectionism and geopolitical tensions.

Moody’s conclusions are contained in its just-released report, “Cross-Sector – Asia-Pacific: 2018 outlook stable on economic growth, supportive trade and monetary policy”.

The report notes that broad-based economic growth globally and in the
Asia-Pacific region is expected in 2018, even as China’s growth slows mildly in line with the authorities’ desire for better management of leverage and financial risks.

Meanwhile, positive growth momentum will continue in Japan and recover in
India, while the Philippines and Vietnam will be the standouts among ASEAN economies in terms of economic performance.

“For the first time since the Global Financial Crisis, we are seeing a  synchronized expansion across all the major economies,” says Michael  Taylor, a Moody’s Managing Director and Chief Credit Officer for Asia Pacific.

“Asia will remain the fastest growing economic region in the world, supported by a recovery in global trade and continued accommodative monetary policies by Asian central banks,” adds Taylor.

Moody’s expects global funding and liquidity conditions to remain generally stable, even as global monetary conditions start to normalize.

“In this context, Moody’s has a stable outlook for sovereign creditworthiness in Asia Pacific in 2018, while with the region’s banking systems, it holds stable outlooks on 13 of 16 banking systems and positive outlooks on two more,” says Joy Rankothge, a Moody’s Vice President and Senior Analyst and one of the report’s authors.

Despite Moody’s stable outlook for credit conditions in Asia during 2018,
several downside risks to the benign core scenario are apparent.

Such risks include an unexpected tightening of global financing conditions
that could arise as a result of the unwinding of the extraordinary monetary policy support introduced at the height of the global financial crisis.

Moody’s also notes that the tariffs announced by the US administration on
22nd January 2018 are unlikely to have immediate credit effects for its
rated issuers in the APAC region. However, if they signal rising trade
protectionism, resulting in significant and broad-ranging measures, they
will have wide-ranging negative consequences for Asia.

The implications of the US tariffs are further discussed in another Moody’s report also published today, “US tariffs, if they signal rising protectionism, could hurt rated manufacturers, sovereigns”

Other possible downside risks include rising trade protectionism and
geopolitical tensions in the Korean peninsula or South China Sea,
although Moody’s assigns only a low probability of either leading to
conflict.

Looking more long term, with secular trends shaping Asia’s credit
outlook, Moody’s sees technological innovation and disruption as a major
driver, with the region in many instances leap-frogging the rest of the world in areas such as industrial robotics and financial technology.

On climate change, Asia is set to become a bigger global player in green
bond financing, and it is also home to some of the most exposed populations and economies to changing climatic conditions.

Demographics is the final secular trend Moody’s discusses in its new report, noting that Asia’s growing middle class could be a force both shaping and driving consumption patterns and demand regionally and globally.