Moody’s Investors Service is expressing mounting apprehension over the sovereign creditworthiness of Asia-Pacific countries in 2024. Their negative outlook stems from a combination of factors: China’s lackluster economic growth, tight funding conditions, and persistent geopolitical risks. These challenges are raising uncertainty regarding the region’s financial stability.
China’s economic recovery from the COVID-19 pandemic has fallen short of expectations, with the country’s GDP growth for the final quarter of 2023 at 5.2%, missing the estimated 5.3% in a Reuters poll. Moody’s latest report predicts that China’s real GDP growth will further slow down to 4% in 2024 and 2025, marking a significant decline from the 6% average observed between 2014 and 2023.
This deceleration in China’s economic growth is poised to exert considerable influence on the economies of the Asia-Pacific region due to their deep integration into global supply chains. In addition to China’s economic woes, Asia-Pacific sovereigns are grappling with the challenge of tight funding conditions. Moody’s Senior Vice President, Christian De Guzman, highlighted that these conditions are exacerbated by global liquidity trends.
The Federal Reserve’s reluctance to ease interest rates until the middle of the year further exacerbates the situation, making it challenging for Asia-Pacific central banks to detach themselves from these global liquidity conditions. Persistent strategic tensions between China and the United States are a significant geopolitical risk that looms over the Asia-Pacific region. Both nations are crucial trading partners for most Asian countries. As the divide between China and the U.S. widens, it becomes increasingly challenging for these nations to maintain a balanced economic partnership.
This ongoing friction may drive companies to diversify their supply chains away from China, potentially benefiting countries like India, Malaysia, Thailand, and Vietnam, as mentioned in the Moody’s report. Despite the prevailing challenges, Moody’s suggests that the region’s outlook could stabilize with broader economic growth driven by domestic demand and increased regional trade. As financial conditions ease, this could usher in a more stable economic environment for Asia-Pacific nations, potentially mitigating some of the looming credit risks.