Some member states of the Association of Southeast Asian Nations (ASEAN) will stand to benefit from supply chain shifts as countries reconfigure trade relationships following the COVID-19 crisis, Moody's Investors Service said on Tuesday.
However, localisation of production that moves productive capacity out of the region will have negative effects for Asian producers, resulting in mixed credit implications for ASEAN sovereign and other debt issuers.
Moody's said risk mitigation efforts will lead to reduced dependence on China in global value chains. COVID-19 is reinforcing trends arising from structural shifts in export competitiveness, the China-US trade conflict and heightened national concerns over economic security. Ensuring supply security will become the key focus for many governments and compes.
Over time, trade diversification will likely favour ASEAN economies. While the technological capabilities of the ASEAN region still lag those of more advanced Asian economies, particularly in electronics, a general openness to foreign direct investment (FDI) and lower production costs offer some advantages.
Recent events will accelerate offshoring of activities to ASEAN, said Moody's. Trade flows between the rest of Asia and advanced economies will likely grow at the expense of trade between advanced economies and China. "But no exodus of foreign compes from the Chinese market is likely even as compes step up efforts to mitigate risks."
Free trade agreements (FTAs) and deeper regional integration could lessen reshoring strains. Enhancing FTAs with advanced economies could provide incentives for multinational corporations to retain productive capacity in the region. ASEAN could also deepen its linkages in Asia through regional multilateral trade agreements.
Moody's said increased regionalisation of trade could encourage deepening of intra-ASEAN linkages. ASEAN could develop further as a trading bloc in its own right, developing deeper economic integration.
As its middle-class population grows, household purchasing power will rise and become a significant driver of consumption and investment. But the region will need to address structural challenges to harness its full potential, said Moody's.
( With inputs from ANI )
Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor