Sovereign credit ratings across the Asia-Pacific region are mostly stable, but political risks could place negative pressure on these ratings in the coming year, Moody’s Investors Service has said.
Improvements in household income levels and the improving strength of financial institutions across the region will continue to support the credit ratings of several countries, Moody’s said, but warned countries relying on global trade will face negative pressure.
“Although GDP growth in the region remains relatively robust, lacklustre growth in global trade and capital outflows may weigh on the credit profiles of those more dependent on external demand or financing,” the research house said.
“Given this context, credit outcomes in 2017 will be determined by the effectiveness of ongoing reform efforts and the evolution of political risks.”
The company added that this political risk was “unlikely to abate in 2017”, and that latent political risks in some parts of the Asia-Pacific region have begun to flare up.
“Were domestic or geopolitical tensions to escalate, they would exacerbate the negative credit drivers or derail credit-supportive factors in the region,” Moody’s said.
“For instance, political developments could interfere with the ability of governments to implement reforms and would exacerbate the negative growth impact of slower global trade and capital flow reversals.”
Additionally, the majority of ratings actions taken throughout calendar year 2016 were “overwhelmingly negative”, with 38 per cent of the rated sovereigns seeing a decline in their fiscal strength and 42 per cent now more susceptible to event risk than they were in the previous year, Moody’s said.
The company also pointed out that while 18 of the 24 rated sovereigns maintained a stable outlook, four of the remaining countries were negative, and only two were positive.
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