BANGKOK – The Asia-Pacific region will maintain a stable outlook for sovereign creditworthiness in the next 12 to 18 months thanks to a favorable growth environment and despite a high leverage index, the Moody’s ratings agency said on Wednesday.
For 2018, Moody’s has predicted a 6.5 percent growth for the Asia Pacific emerging markets, 5.9 percent for the frontier economies and 1.8 percent for the advanced economies.
“Robust economic strength in the region and high levels of trade openness leave the region’s sovereigns well-positioned to benefit from stronger global GDP growth,” Moody’s analyst Anushka Shah said in a statement.
In its latest report, the agency said that most of the economies of the region will continue to be highly leveraged in the government, corporate and household sectors, due to years of slow revenue growth and low interest rates.
“As interest rates are more likely to rise than fall further, government debt is a particular concern for the frontier markets and Japan,” said the agency, warning of less monetary policy space in the economies which have less flexible exchange rates or a high level of dollarization.
The report kept a stable outlook for 21 of the 24 economies included in the report, including Japan (A1), China (A1), and India (Baa2), while the two others got a positive outlook, including Vietnam (B1).
The agency also warned that slower pace of cross-border economic integration will constrain improvements in growth potential compared with the past two decades and said that the rebalancing of the Chinese economy was a medium-term challenge.
Moody’s highlighted the rise of geopolitical tensions in the region in 2017, especially on the Korean peninsula, but said that the probability of a conflict was low, although with a high credit impact for Korea, Vietnam and Japan.
The agency also said that the busy electoral schedule may slow down reforms in economies of the region, such as Malaysia, Cambodia, Fiji, Thailand, Pakistan and Maldives.