A slowdown in the US economy and a drop in the pace of foreign reserve accumulation in some Asian nations are among the biggest influences to sovereign ratings in the region next year, Fitch Ratings said.
The threat of conflict in the Korean peninsula, cross-strait tensions between Taiwan and China and elections in Thailand and the Philippines will also weigh on rating changes, the company said in a report published yesterday.
"Asian sovereigns most directly affected by a slowdown in US import growth are Hong Kong, Singapore and Malaysia, where US exports account for the largest share of GDP," Fitch said. "Faced with an expected decline in external demand, Asian economic policy makers may wish to enact offsetting policies. These could include fiscal stimulus measures or monetary easing."
The US economy may slow to 2.4 percent next year from 3.2 percent this year, while US merchandise import growth, which Fitch says is more significant for Asian exporters, will drop to 3.1 percent next year from 12.5 percent this year, Fitch said.
Central banks that are most likely to cut borrowing costs next year include Thailand, South Korea, Indonesia and the Philippines, the analysts said.
"In a number of countries, especially large oil importers, inflation is beginning to trend lower with the fall in international oil prices," the report said.
"Fitch expects central banks in Asia to begin reducing policy rates," it said.
Fitch said it did not expect a slowing pace of reserves accumulation to hurt credit ratings next year. No Asian nation has insufficient foreign exchange reserves, even though the ratios for Indonesia, the Philippines and Sri Lanka are below what it calls a peer group median.
"Accumulating reserves and prepaying external debt are equivalent from a net debt perspective, though prepayments are likely to improve the balance of payments by lowering future interest payments," Fitch said.
A sharper-than-expected decline in the US dollar next year would "renew upward pressure" on Asian currencies, Fitch said.
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