Amidst the furore over Standard and Poor's (S&P) historic US debt rating downgrade from AAA to AA+ last Friday, the rating agency said there was no immediate impact on Asia-Pacific's sovereign ratings.
However, it saw a more volatile environment with potential long-term negative repercussions like a weaker financing environment, slower growth and higher risk aversion, S&P said in a statement yesterday.
“For the moment, the generally stable outlooks for Asia-Pacific sovereigns (with the exception of New Zealand, Japan, Vietnam, and the Cook Islands) is supported by sound domestic demand, relatively healthy corporate and household sectors, plentiful external liquidity and high domestic savings rates,” it said.
S&P said its opinion was based on a baseline assumption of no likely abrupt dislocations in the developed nations' financial and real economies.
However, given the interconnectivity of the global markets, S&P said an unexpectedly sharp disruption in the developed world's financial markets could change the picture, leading the US and European economies into deep contractions again or further delay their recoveries.
“In this scenario, things will not be different from the experience of the global financial crisis of 2008-2009 when export-dependent economies with large exposures to the United States and Europe felt the most pronounced economic impacts.
“US and Western Europe remain significant markets for Asia-Pacific exports, even if their importance has declined over the past couple of years compared with intra-regional Central and Eastern European, Middle East and Latin American trade,” the rating agency said.
The report added that Thailand, Taiwan, South Korea, Malaysia, the Philippines, Japan, Australia and New Zealand were likely to experience export-driven slowdowns either through weaker demand or lower export prices, or both.
At the same time, countries that had weaker external positions could come under pressure as international liquidity tightens. Some might require additional external assistance to prevent sharp economic adjustments, it said.
“Those with financial system that relies on offshore markets may face reduced liquidity and a heightening of refinancing risk in the near term.
“To varying degrees, Pakistan, Sri Lanka, Fiji, Australia, New Zealand, South Korea and Indonesia may be affected,” it added.
S&P noted that the adverse impact on the region would likely require governments to use their balance sheets to support their economies and financial sectors once again, “and, in our opinion, most governments would promptly oblige”.
“But some of them (Japan, India, Malaysia, Taiwan and New Zealand) continue to bear the scars of the recent downturn,” it said.
It also emphasised that a renewed slowdown would likely create a deeper and more prolonged impact than the last one.
“The implications for sovereign creditworthiness in the Asia-Pacific would likely be more negative than previously experienced, and a larger number of negative rating actions would follow,” it said.
In a separate statement, S&P said the impact on Asia-Pacific corporates, financial institutions and structured finance ratings “would only be limited”.
By LIZ LEE
lizlee@thestar.com.m
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