Moody’s Investors Service expects the credit quality of Moody’s-rated sovereigns, financial institutions (FIs) and corporates across Asia Pacific will be stable in 2015. The credit ratings agency (CRA) cites a modest recovery in external demand – especially from the US – supportive global monetary conditions, and the region’s fundamental strengths and defences against external shocks in support of its outlook.
“Governments, FIs and the vast majority of corporates that we rate will be resilient if, as we expect, global liquidity conditions become less accommodative next year, and China’s economic rebalancing continues,” said Michael Taylor, a Moody’s managing director and chief credit officer for Asia Pacific.
“In addition, there will only be a moderation and not a major disruption to capital inflows to Asia Pacific in 2015, with offshore borrowing costs likely to remain well below historical norms,” commented Rahul Ghosh, a Moody’s vice president and senior research analyst.
Moody’s conclusions are contained in its just-released report co-authored by Taylor and Ghosh and titled
‘Asia Pacific Credit Outlook: Stable Credit Quality in 2015 Despite Global and Regional Challenges’
The report says that rising domestic demand in the US, underpinned by improving growth, will benefit Asian exporters. By contrast, the growth prospects in Japan will be weighed down by structural impediments such as public sector debt overhangs, labour market rigidities and intensifying demographic pressures.
As for China’s continued economic rebalancing, Moody’s report says that while China’s gross domestic product (GDP) growth is slowing, the authorities’ ability to ability to support economic activity when required will prevent an abrupt fall in growth, and a significant worsening of credit quality for the vast majority of Moody’s-rated issuers.
Moody’s believes there will be a sustained but measured slowdown in Chinese economic activity in 2015, with real GDP growth of 6.5%-7.5%.
However, the CRA points out that the sustained slowdown of growth in China and economic rebalancing will continue to pose credit challenges for several sectors in the domestic economy.
Weaker companies in the mining and steel sectors in China are vulnerable to slower Chinese GDP growth in 2015, given subdued demand levels, overcapacity issues within the two industries, and the increasingly restricted access to bank and shadow bank financing.
The report also says that while persistent weakness in global commodity prices will continue to present serious credit challenges to raw material producers in Asia Pacific, the region’s status as a net oil importer, and the opportunity for governments to pare back subsidies, means that falling crude prices will be credit positive for much of the region.
Moody’s outlook for the region’s banking system is also broadly stable, with 10 stable, one positive, and five negative outlooks. As for corporates and project and infrastructure finance issuers, 82% carry stable outlooks.
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