Fitch sees limited fiscal room but solid APAC growth

October 27, 2025 (MLN): The Asia-Pacific (APAC) region continues to face export challenges amid ongoing US tariffs and weakening global demand, yet Fitch Ratings expects the region’s economic growth to remain stronger than most other parts of the world, according to fitch rating.

According to the latest Fitch analysis, the impact of softer global demand will be cushioned by a weaker US dollar and monetary easing in some economies, where central banks have room to cut policy rates.

However, these headwinds are already straining fiscal consolidation efforts in several APAC countries.

Fitch noted that policy responses will be critical in mitigating the effects of weaker demand on sovereign credit profiles. Some governments across the region are ramping up spending to support households against the rising cost of living, even though inflation remains relatively subdued, a sign of sluggish domestic activity.

The agency also cautioned that recent violent protests in countries like Nepal, Indonesia, and the Philippines could add further pressure on public spending.

While deep domestic capital markets are helping some economies finance fiscal deficits, overall fiscal headroom has narrowed.

Fitch observed that fiscal consolidation across the region has been modest, following a significant rise in debt levels during the Covid-19 pandemic.

Most APAC sovereigns retain a Stable Outlook, with the exception of Thailand, which is rated on Negative Outlook due to mounting risks to public finances amid prolonged political uncertainty, slower global demand, delayed tourism recovery, and household deleveraging.

In terms of recent rating actions, Pakistan was upgraded to ‘B-’ from ‘CCC+’, and Uzbekistan to ‘BB’ from ‘BB-’, recognizing progress in reforms and improved support from IMF programs and funding sources.

Conversely, China was downgraded to ‘A’ from ‘A+’ in April, showing expectations of continued weakening in its public finances and a rapidly rising debt burden amid economic transition.

Fitch concluded that while APAC remains a relatively strong performer globally, the region’s resilience will depend on effective policy responses and prudent fiscal management amid persistent global headwinds.

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