ASIA’S China-led is better positioned to absorb the ongoing economic shock of the COVID-19 pandemic in 2021 than are other regions although in line with global trends, its economic activity and living standards will still trail pre-pandemic projections.
On the same note, the pandemic shock has also increased the vulnerability of Asia’s weaker credits, according to Moody’s Investors Service.
“Asian countries with stronger governance and better control over the pandemic will face fewer strains on growth prospects and a quicker reversal of negative fiscal metrics,” Moody’s assistant vice-president and analyst Deborah Tan pointed out in a new report.
The report highlights the main risks influencing Asia’s credit conditions ahead of the credit rating agency’s annual flagship Credit Trends conference series which kicks off this week.
“Still, government’s policy measures are unlikely to offset the fallout on growth over the next 12 months at least despite the sheer scale of policy support in the wake of the pandemic,” added Tan.
Moody’s expects economic activity and living standards for most of Asia in 2021 to be lower than the levels that were potentially attainable before the pandemic with the greatest impact on the more vulnerable economies.
Greater polarisation of credit quality is likely across the region with vulnerabilities amplified for the weaker credits. This explains the share of negative outlooks across the sovereign, banking and corporate sectors has increased for 2021.
Moreover, the pandemic will speed up a number of secular shifts, widening the wedge in credit quality.
“Supply chain re-configuration, increased digitisation and the capacity to address rising social inequalities resulting from a setback in living standards will have divergent effects across the region,” observed Tan.
“Significant uncertainty remains around the future path of the pandemic and economic disruptions.”
Given this uncertainty, sudden shifts in sentiment could induce unstable capital flows in the region although funding likely will be less of a constraint as a whole in Asia in 2021 than in 2020 because of ample liquidity.
Nevertheless, shifts in sentiment would challenge highly indebted Asian issuers, added Moody’s. – Jan 26, 2021
