Corporations in for difficult year, says Moody’s

Companies in Asia are expected to register a slight increase in loan defaults this year, given the ill-effects of the prolonged debt crisis in the eurozone and uncertainties in the global economy, according to Moody’s Investors Service.

Moody’s said in a recent report that rated corporate entities in Asia are seen posting a default rate—the share of defaulted loans to the total of 2.3 percent.

Moody’s considers this rate modest, but still worrisome considering that there was no loan default registered last year.

“Corporates are facing a more challenging operating environment as the anemic recovery in the US and the EU sovereign and financial crises are expected to slow growth in Asia, including China,” said Moody’s credit officer Clara Lau.

The eurozone is a key export market for many emerging Asian economies, including the Philippines.

It also hosts many overseas Filipino workers and is a major source of foreign direct investments and official development assistance.

Given the role played by the eurozone, economists said debt and economic problems in that region are likely to affect even the income performance of enterprises, mainly exporters, in emerging Asian economies.

There is a consensus that although European policymakers are implementing measures to address the debt woes of the region, the eurozone will continue to struggle this year. In fact, the region is seen entering a mild recession.

In the case of the Philippines, the unfavorable developments in the eurozone caused export earnings to drop by close to 7 percent last year from the year before.

The decline in the country’s export earnings was partly blamed for the slowdown of the growth of the overall economy to 3.7 percent in 2011 from the three-decade-high of 7.6 percent in 2010.

The discouraging performance of the export sector last year has prompted government officials to tweak the country’s export strategy.

The National Economic and Development Authority (NEDA) has said measures will be implemented to help diversify markets for Philippine-made goods to include more Asian countries.

NEDA also said the government aims to support development of other export products so that the Philippines will rely less on electronics, which account for about half of the country’s total export revenues.

Government economic managers, however, expressed confidence that corporate entities outside the export sector are poised for a favorable income performance this year.

They said that although the problems in the Eurozone have adverse effects on the Philippines, these should be offset by growing domestic demand.