Kuala Lumpur, 10 June 2020 – Asia Pacific’s (Apac) economic momentum should turn positive in the second half of the year as domestic lockdowns are eased and external demand gradually improves, Fitch Ratings said.
This would limit the drop in the regional economic output to 1.7 per cent this year, Fitch added.
Despite this, the firm said a number of Apac sovereigns would continue to face negative rating pressures amid the shock from the coronavirus pandemic.
This is particularly from deteriorating public finances and, in some cases, external financing risks.
The Apac region as a whole was set to outperform the global economy, Fitch said today.
“The contraction we forecast for Apac in 2020 represents a relatively strong outcome compared with the 4.6 per cent contraction in the global economy that we expect in 2020.
“The outperformance will be led by China, which we expect to post quarterly growth in 2Q20 and a full-year expansion of 0.7 per cent.”
As activity normalises, Fitch projects regional growth to rebound strongly in 2021 from the troughs this year.
The firm said majority of the region’s sovereign credits are on Stable Outlook.
However, this follows a number of negative rating actions this year, including downgrades on Hong Kong, the Maldives, and Sri Lanka, and the removal of Positive Outlooks on the Philippines, Thailand and Vietnam.
The pandemic was a factor in all of these rating actions, it added.
Negative outlooks are in place on the ratings of six sovereigns in the region.
Half of these are frontier markets that face external refinancing risks (Laos, Maldives and Sri Lanka), while the remainder are coping with high and rising public debt ratios or, in the case of Macao, downward credit pressures from declining gaming revenues.
Some sovereigns such as Indonesia, Korea and New Zealand, entered the crisis with policy space to counter an unexpected downturn through fiscal easing without putting pressure on their ratings.
For others, widening fiscal deficits and rising public debt ratios present negative rating pressure.
Fitch said in countries in which general government debt-to-GDP ratios were already above the respective peer medians, a further jump in their ratios in 2020 can be expected.
The countries include Australia, India, Japan and Malaysia.
“More generally, when governments fail to present credible medium-term strategies for stabilising or reversing the recent rise in debt-to-GDP levels after the crisis subsides, this could strain ratings.”
Although fiscal policy responses will in some cases add to downside rating pressures, they would also contribute to an acceleration of regional growth momentum in the second half, Fitch added.
-New Straits Times
