New Delhi [India], December 26 : Despite facing various challenges, Asia-Pacific (APAC) sovereigns are poised for resilient growth in 2024, outperforming global peers, according to Fitch Ratings' latest outlook.
The sector outlook is marked as neutral, reflecting both strengths and vulnerabilities across the region.
Fitch Ratings anticipates that APAC sovereigns will sustain robust growth in 2024, remaining comparatively higher than other regions.
This resilience is attributed to the deceleration of growth in the US and China. The anticipated recovery in the tech cycle is expected to play a pivotal role, particularly benefiting countries like Korea, Malaysia, Taiwan, and Singapore.
However, challenges loom, with high borrowing costs and modest fiscal consolidation contributing to rising debt ratios in approximately half of the APAC sovereigns.
The sustained strength of the US dollar and global high yields may lead to continued refinancing challenges, especially for "frontier markets," necessitating dependence on official financing.
Thomas Rookmaaker, Head of Asia-Pacific Sovereigns, said, "APAC sovereigns will remain relatively resilient to challenges from decelerating global demand and continued high US interest rates in 2024. That said, limited fiscal headroom could leave the credit profiles of some APAC sovereigns vulnerable to future economic shocks."
The rating outlook distribution for APAC sovereigns is mostly stable, with only two negatives - the Maldives facing external liquidity strains and challenges in maintaining its hard peg to the US dollar, and Bangladesh, which experienced a Negative Outlook due to deteriorating external buffers.
The outlooks for 2023 were marked by actions in frontier markets, including a downgrade of Pakistan and an upgrade for Sri Lanka following its local-currency debt restructuring.
An expected upturn in the global tech cycle is anticipated to boost exports and GDP growth in APAC. Fitch foresees a gradual recovery in the tech sector, driven by factors like 5G and AI advancements.
Despite challenges in external demand in 2023, the tech cycle's resurgence is poised to strengthen Asia's exports from a relatively low base.
Growth forecasts for 2024 and 2025 indicate a favourable outlook for APAC compared to Western Europe and North America, with APAC emerging markets leading globally. The tourism sector, having room for upside, is showing signs of recovery in the Maldives, Thailand, and Malaysia.
Fiscal deficit reduction is expected to be modest across most APAC sovereigns, with deficits surpassing pre-pandemic levels in 2024.
External financing pressures persist in some frontier markets, with diverging reserve dynamics. While certain central banks can accumulate reserves, others face currency pressures.
External liquidity positions, especially in frontier markets, are sensitive to trends in Foreign Exchange (FX) reserves.
Geopolitical factors continue to influence the APAC region in 2024, with notable attention on Korea and Taiwan. Sino-US tensions, although easing recently, are expected to persist, prompting global firms to diversify supply chains.
Elections scheduled in nearly half of the APAC sovereigns may introduce uncertainties, with implications for countries like Bangladesh, India, Indonesia, Pakistan, Sri Lanka, and Taiwan.
Despite challenges, Fitch Ratings emphasizes the resilience of APAC sovereigns and their ability to navigate a complex economic landscape, highlighting the importance of continued monitoring of geopolitical risks and economic policy shifts.
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