Fitch says APAC Sovereigns to face risks from slowing global growth in 2023

Friday, 9 December 2022 00:25 -     - {{hitsCtrl.values.hits}}

Fitch ratings yesterday cautioned that continued global headwinds imply lower GDP growth for many Asia-Pacific (APAC) sovereigns in 2023, as well as higher interest costs and slower fiscal consolidation.

It said Asia’s export outlook is deteriorating, and US Fed rate hikes have led to a strong dollar, declining FX reserve buffers, and refinancing pressures for “frontier markets”.

Fitch also said credit profiles of many investment-grade APAC sovereigns have shown resilience so far to the commodity-price shock and tighter global financing conditions. The outlook distribution among APAC sovereigns is fairly balanced for the APAC sovereign portfolio, with two negative outlooks (Philippines; Maldives) and one positive (Vietnam).

Growth rates in APAC will generally remain higher in 2023 than in other regions, but both domestic and external demand will weaken for many sovereigns. The rebound from the pandemic is still strong in many places but should start to fade. 

Higher financing costs associated with the lagged impact of tighter monetary policy and elevated inflation are also likely to weigh on investment and consumption, amid less supportive fiscal policy settings. Moreover, recessions in Europe and the US, and a weak Chinese recovery, will impair demand for Asia’s exports.

Fitch expects a reduction in fiscal deficits over the next few years for most APAC sovereigns, but generally at a slow pace, as structural consolidation measures are taken in few places. Pre-pandemic fiscal deficit levels still seem quite far off for many, even in 2024. Slow fiscal consolidation means that Fitch forecasts a substantial reduction in public debt over the next few years for only a few APAC sovereigns.