Global demand has helped steady Asia-Pacific’s economies that are so reliant on trade, but sovereign profiles will remain strongest where the export surge mixes with structural reforms and investments in infrastructure, according to a new Moody’s Investors Service report.
China and Japan have been contributing to the global uptick in trade and supporting regional demand, Moody’s analysts said. Moody’s has raised its GDP forecasts for Asia-Pacific economies, and should external demand and robust domestic conditions form to sustain business investment, the ratings agency expects the medium-term growth outlook will remain positive.
“The acceleration in growth in Hong Kong (Aa2 stable) and Malaysia (A3 stable) looks to be more broad-based than in other trade-dependent economies, reflecting in part the strength of public infrastructure spending,” Moody’s said. “In the event that solid external demand persists and ongoing government infrastructure spending supports a further wave of investment by private businesses, that could mean that growth there slows less in 2018 than we currently expect.”
Countries like Thailand that don’t benefit as much from accelerating global demand may have to rely more on additional fiscal stimulus to support their economies, analysts said. “Trends in gross fixed capital formation have differed markedly among the region's trade-dependent economies, suggesting that some businesses have started to invest in new or replacement equipment and facilities, while others are still using existing idle capacity to meet increased demand.”
The positive effects on the economy following India (Baa3 positive) and Indonesia’s (Baa3 positive) efforts to attract more foreign direct investment, as well as steps they’re taking to improve business conditions, will be boosted in a stronger global macroeconomic environment. “Similarly, the global up-cycle will amplify improvements in business operating conditions in Vietnam (B1 positive) that have already attracted investment and helped production move up the manufacturing value chain,” Moody’s said.
– Nicholas Stern, managing editor