Bangkok--16 Aug--Moody's
Moody's Investors Service says that the overall sovereign ratings trend for the Asia-Pacific region remains in a stable to positive direction.
"In Asia-Pacific -- where Moody's rates 21 sovereigns -- there have been no downgrades originating from the global crisis and credit fundamentals will likely remain firm in the next 12 months for most countries," says Thomas Byrne, a Senior Vice President with Moody's Sovereign Risk Group.
"And so far in 2010, there have been two upgrades, Korea ratings and India's local currency rating, and one change in outlook to positive, Indonesia. And negative outlooks remain on Thailand and Vietnam."
Byrne was speaking on the release of Moody's Asia-Pacific Sovereign Mid-Year Outlook, which he authored.
"China's robust growth has helped produce a V-shaped regional recovery with the Mainland's strong demand for regional exports a key driver," says Byrne. "Economic output in most regional countries has recovered fully to pre-crisis levels, and China and other emerging market countries led the global recovery in the first half of the year."
"Overall, the risks to the economic and ratings outlooks in Asia-Pacific are manageable, and we believe regional ratings would be resilient to further turbulence in the global financial markets. However, tail risks would arise from a collapse of growth in China, or an even more severe global recession," says Byrne.
While we maintain a stable outlook on Japan's Aa2 rating, the Japanese economy is vulnerable to the risk of a severe slowdown in global growth or demand for its exports. Also, downward rating pressures would arise from policy paralysis in addressing the need for fiscal consolidation and economic growth revitalization.
"But concerns persist about risks from destabilizing capital flows, despite the recent return of risk aversion in global markets, given the large interest rate differentials between most Asian countries and the large, advanced countries."
"Nonetheless, recurring global financial market strains are having a muted effect in the region," says Byrne. "Strong external payments positions, low dependence on external funding for fiscal deficits, healthy banking systems, as well as moderate levels of government debt have provided a high degree of immunity to the sovereign debt stress evident earlier this year in Europe."
"Fiscal consolidation in the region will happen at a faster pace when compared to the developed economies, such as the US and those in the eurozone, and this will also have attendant effects on debt stabilization for most countries in Asia-Pacific (excluding Japan)," says Byrne.
Looking ahead, regional economic growth will slow in tandem with China and the advanced economies, the report says. Uncertainties in advanced country growth will also temper the robustness of the regional recovery in the year ahead.
The 21 countries rated by Moody's in Asia-Pacific are located in East Asia, Southeast Asia, South Asia and the Pacific. Ratings range from Aaa to B3.
The report is entitled "Asia-Pacific Sovereign Mid-Year Outlook" and can be found at www.moodys.com.
The principal methodology that Moody's uses in sovereign ratings is "Moody's Sovereign Bond Ratings Methodology," published in September 2008 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.