Moody's Investors Service says outlook for APAC sovereign creditworthiness in 2020 is negative, underpinned by slower economic growth, a turbulent external environment and some governments' reduced capacity to respond to shocks - Photo: Special

JAKARTA (TheInsiderStories) – Moody’s Investors Service says outlook for Asia Pacific (APAC) sovereign creditworthiness in 2020 is negative, underpinned by slower economic growth, a turbulent external environment and some governments’ reduced capacity to respond to shocks.

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 — will constrain the credit quality of rated sovereigns in APAC.

“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,” says Martin Petch, a Moody’s VP and senior credit officer in an official statement today.

These trade frictions will spread via global supply chains, and APAC
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, will 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 APAC, 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,” adds Petch.

On average across APAC, Moody’s forecasts GDP growth of 4.0 percent in 2019 – 2021, slower than 4.4 percent over 2014 – 2018, but still robust by global standards. 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, APAC‘ frontier markets are vulnerableto any sudden shift in investor appetite.

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