Global woes will weigh on Asia-Pac credit outlook '12: S&P

Global economic events may moderate Asia-Pacific credit outlook in 2012, says S&P report.
 
Global risks have steadily increased over the year, with economic growth marked down. While emerging markets are holding up, the base case is for weak growth in the U.S. and a mild recession in the European Economic and Monetary Union (eurozone) in the first half of 2012. The European crisis poses risk, albeit indirect, to sovereigns and banks in Asia-Pacific. Nevertheless, the inherent strengths of the regional governments and financial institutions partly mitigate the risk. That's according to a report titled "A Slowdown In Europe And China, And Sluggish Exports Moderate Asia-Pacific Credit Outlook In 2012," that Standard & Poor's Ratings Services published today.

"In contrast to the economic and financial challenges plaguing Western governments, economic growth fundamentals and government fiscal positions in Asia-Pacific are generally sound," said Standard & Poor's credit analyst Ian Thompson. "The region, however, cannot remain immune to the problems in the advanced economies given that Europe is an important trading partner. Slowing growth in China will be another key issue to watch out for."

According to the report, volatile surges in capital inflows and rapid reversals are likely as investors vacillate between higher returns and increased safety. Surging capital flows may reignite inflationary pressures, distort currency values, and create asset bubbles in Asia-Pacific. Exports could also fall sharply as demand in the developed markets remains constrained. The risks are higher for Korea, Taiwan, and Singapore.

"Mounting challenges across the globe could severely test the resilience of sovereigns in Asia-Pacific. The uncertainty over sovereign debt and banking sector stability in the eurozone is by far the biggest of these challenges," said Mr. Thompson. "The speed and effectiveness with which the European debt crisis is alleviated will determine the 2012 outlook for banking systems in Asia-Pacific. That said, most banking systems in the region have strong retail deposit bases, which provide a buffer against volatility in wholesale funding markets."

The report says that the 2012 credit outlook for the Asia-Pacific corporate sector is generally stable with patches of weakness. Economic growth prospects in the region remain resilient despite a softer U.S. economic outlook and the uncertainty surrounding European sovereign risks. Asia-Pacific's public and private infrastructure sectors are also expected to continue to expand in 2012. Strong demand, broad-based economic activity, significant ongoing capital expenditure requirements, and favorable demographics should continue to fuel growth in several sectors.

The stable performance of assets underlying securitization transactions in Asia-Pacific, with the exception of Japanese commercial real estate, will likely continue in 2012. Modest macroeconomic growth forecasts, low regional unemployment rates, easing monetary policy, and well-seasoned asset portfolios underpin performance.

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