Moody’s Investors Service has made a negative outlook on the sovereign creditworthiness of the Asia-Pacific region, citing factors such as the slowdown in China’s economic growth, risks associated with the current state of affairs in the sphere of geopolitics, and tight funding as the reasons for this point of view.

The recovery of the Chinese economic system after the abolition of the zero-tolerance policy for coronavirus, which significantly reduced the scale and intensity of business and industrial activity in this country, turned out to be not as fast and rapid as analysts initially expected.

Data from the National Bureau of Statistics shows that in the last three months of last year, China’s GDP grew by 5.2%. Analysts had expected this figure to be fixed at 5.3%. Moody’s predicts that China’s real GDP growth will be 4% in the current year. According to experts, this dynamic will continue in 2025. It should be noted that between 2014 and 2023, China’s average GDP growth rate was 6%.

Moody’s analysts draw attention to the fact that the slowdown in the dynamic of Beijing’s economic indicators is a factor that significantly affects the entire Asia-Pacific region. This specificity of the interconnection is explained by the high level of China’s integration into global supply chains.

Like many other major international investment banks, Goldman Sachs and Morgan Stanley predict a slowdown in the Chinese economy. According to analysts of these organizations, in 2024 the corresponding figure will be 4.6%. At the same time, China’s economic growth over the past year, according to preliminary data, is equal to more than 5%.

During a conversation with media representatives, Christian De Guzman, senior vice president of Moody’s Investors Service, said that in addition to the mentioned negative situation in which Beijing found itself, another pressure factor on the Asia-Pacific region’s sovereign states is strict financing conditions. The expert also drew attention to the current global liquidity conditions, because decisions on easing the Fed’s policy are not expected until mid-2024. At the same time, he noted that nowadays there is no significant dependence of the central banks of the Asia-Pacific region on the mentioned circumstances.

Last December, the Fed decided to keep interest rates at a 22-year high. However, it is expected that in the current year, as the inflation rate decreases, there will be three reductions in the specified indicator.

Moody’s notes that high interest rates will become a barrier to significantly increasing debt affordability. The expectation of a gradual reduction in interest rates indicates that this situation will change in the foreseeable future. However, shortly, the availability of international financing will be a problem for sovereign states with lower ratings.

Christian De Guzman, in the context of creditworthiness the Asia-Pacific region’s creditworthiness, noted tensions in relations between Beijing and Washington. He said that this situation is also a factor of negative impact on the specified indicator.

China is currently the main trading partner for most Asian countries. At the same time, the United States continues to be an important economic partner in the region. Tensions between Beijing and Washington continue to strengthen. Against the background of this trend, it is becoming increasingly difficult to maintain balance in the context of the gradual deterioration of relations between China and the United States, which so far has no signs of normalization and stabilization in the foreseeable future.

At the same time, tensions between Beijing and Washington are in some ways a chance for countries with large manufacturing bases and improving infrastructure, including Malaysia, Vietnam, Thailand, and India. Many large companies operating in the international business space are diversifying supplies outside of China. The purpose of these decisions is to reduce geopolitical risks.

Moody’s also suggests that more sustained growth based on domestic demand and regional trade during a period of softening financial conditions may improve the outlook for the Asia-Pacific region.

As we have reported earlier, Moody’s Changes China Credit Outlook to Negative.