BUFFERS built up by emerging Asian markets such as the Philippines will keep the region insulated from the brunt of the impact of several internal and external crises that threaten global economic stability.
In a report this week, debt watcher Fitch Ratings said growth in the Asia-Pacific region would slow, but still stay higher than those of other parts of the world.
“Effective policy responses and sovereign buffers should provide a degree of protection and the slowdown is better understood as a normalization of growth rates, not a collapse,” Fitch said.
In Asia-Pacific, the outlook remains challenging with added economic pressures from the continued slowdown in China’s growth, sluggish global trade expansion and an expected rise in US rates and the resulting dollar strength.
The expected slowdown in emerging Asia, however, is likely to be driven almost entirely by China. Fitch forecasts Indian growth to accelerate to 8 percent in the fiscal year ending March 2017, while emerging Asia excluding China and India should grow by 5.2 percent in 2016, up from 5 percent in 2015.
“One potential downside risk to regional growth could come from high private-sector debt, which is still rising,” Four Asian emerging markets have the highest ratios of bank private-sector credit to GDP of any Fitch-rated emerging markets—China, Malaysia, Thailand and Vietnam.
Macroeconomic policy responses thus far have also helped to buffer credit profiles. This is especially the case in Indonesia and Malaysia, which stand out as relatively more exposed to external risk factors. Other major economies in the region such as the Philippines and Vietnam are less exposed.
The outlook for Asian economies’ credit profiles was mostly stable, Fitch said, despite the general outlook and mounting regional pressures.
The risks of a financial crisis similar to 1997 are significantly mitigated. External balance sheets are stronger in the region; sovereigns rely less on foreign-currency funding than in 1996 and most countries now also benefit from flexible exchange-rate regimes.
Last October, Fitch revised its outlook for the Philippines’ sovereign debt score to “positive” from “stable.” This means Fitch will most likely grant an upgrade in the next 12 to 18 months. Fitch rates the Philippines at “BBB-,” its minimum “investment grade.”