Asian economies’ outlook stable

MANILA, Philippines - The outlook for the credit rating of Asian economies including the Philippines remains stable despite strengthening headwinds, Moody’s Investors Service said yesterday.

“The overall credit quality of sovereigns, corporations and financial institutions in Asia Pacific is stable,” Moody’s said in a report.

“We believe the region can withstand increased headwinds that are likely in the next 12 months, including slower economic growth in China, the US Federal Reserve scaling back its bond-buying program and the potential bursting of asset bubbles,” Moody’s said.

Moody’s said they expect Asian economies to weather the volatility brought about by the Fed’s tapering of its stimulus program.

“We do not expect balance-of-payments crises when the US Federal Reserve scales back its quantitative easing (QE) program, even in those countries under greatest recent exchange rate pressure,” Moody’s said.

Such is the case as economies have already built up reserve buffers and have flexible exchange rates in order to withstand the shocks.

“Most banking systems are funded with deposits and have little offshore wholesale funding exposure, with the exceptions of Korea, Australia and New Zealand. Moreover, the default rate for Asia Pacific (ex Japan) high-yield corporates will remain low in 2013,” Moody’s said.

Analysts widely expected the US Fed to begin scaling back its massive bond purchases last September. The US central bank, however, decided to keep its program intact then, fueling more volatility in the markets as investors second guess the actual timing of the tapering.

At the same time, Moody’s said China’s slower economic growth has been hurting exports in the region amid decreasing demand from the world’s second largest economy.

“The slowdown in China will have an adverse effect on the economic growth and government finances of countries that export natural resources; there have already been some signs of the impact in Australia and Indonesia,” Moody’s said.

Exports from Japan, Korea sand other Southeast Asian economies have already been falling due to shrinking demand from China, the debt watcher added.

The region is also seeing the risk of asset bubbles amid sustained credit growth, except for Japan, Korea, Australia and New Zealand. Moody’s noted that interest rates in Asia have been relatively low, driving consumer debt up.

“Housing prices are also elevated in many markets, creating risks of a downturn as quantitative easing tapers. Still, our assessment on bank exposures is that property loan-to-value ratios are generally low, owing partly to strong regulatory oversight,” Moody’s said.