November 26, 2019 (MLN): The financial agency, Fitch Ratings has forecasted the stable sector outlook for Asia-Pacific Sovereigns. The agency highlights that the slowing global growth and trade policy uncertainty in 2020 will continue to weigh heavily on Asia- Pacific (APAC) exports and economic activity. These pressures will be partly offset by substantial financial buffers and room for further policy easing in many of the region’s economies.
In a brief analysis report, the US-based international credit rating agency has pointed out that domestic demand will be supported by sustained consumption growth, ongoing public infrastructure spending and fiscal easing, as the room for further interest- rate cuts become more limited.
More notably, a strong US dollar will pose challenges for emerging markets, even as low global interest rates help ease external financing pressures. Several of the region’s frontier markets will continue to face external challenges posed by low reserves and high external debt repayments.
As far as outlook is concerned, Fitch-rated APAC sovereigns are on a stable outlook, except Thailand and Vietnam (both Positive) and Hong Kong (Negative). The stable rating outlooks reflect fiscal and external buffers, with shock-absorbers embedded inflexible policy frameworks that should enable the region to withstand external pressures.
The positive outlooks reflect easing political uncertainty in Thailand and a lengthening record of macroeconomic stability in Vietnam. However, the agency’s views on Hong Kong reflects the impact of ongoing protests on the business environment and reputation as a stable business hub.
APAC sovereign ratings are well dispersed across the triple-A to single B spectrum. The ratings span advanced economies such as Australia and Singapore (both ‘AAA’), emerging-market economies such as Indonesia and the Philippines (both ‘BBB’), and frontier markets such as Mongolia and Sri Lanka (both ‘B’) and Pakistan (‘B-’). The prevalence of stable outlooks means that the broad rating distribution is likely to remain intact over the coming 12 to 18 months.
Regarding geopolitics cloud outlook, frictions between the US and China over trade, technology, and regional influence, irrespective of prospects for a “Phase One” trade deal or the outcome of US elections, will continue to reverberate. Policies in frontier markets could be affected by the relations between India and Pakistan.
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