MOODY'S Investors Services has cut growth projections for many Asia-Pacific countries given subdued global growth, weak demand from China and a commodities slump, all of which are weighing on export revenue, growth and fiscal balances.
Nevertheless, the sovereign credit profiles of Asia-Pac countries are resilient to lower growth as most credit indicators namely government debt and balance of payments ratios remain in line with its assumptions and within the range for each sovereign's peer group, said Moody's in a statement.
In the agency's latest report "Asia Pacific Sovereigns: Credit Profiles Resilient to Slowing Exports, Subdued Domestic Demand", Moody's said that domestic demand in most Asia-Pac countries was unlikely to offset the effect of slower global growth, partly because an anticipated investment boost from government infrastructure spending has not materialised in some cases.
In addition, households are saving more of their income gains from lower energy costs than previously expected, despite monetary easing by central banks in the region.
"Market volatility and political risk are also weighing on confidence," it added.
Although the growth in Asia is slowing from high levels, the report said that on average, it was still stronger than most other regions.
The risk of deflation at this point is minimal, while lower oil prices have supported current account and fiscal positions in many Asian countries, offsetting the risks from slower growth and external financial volatility.
Moody's expects the pressures on exchange rates and reserves in many Asian countries to continue as international markets respond to slower emerging market growth and the looming rate hike in the US.
"Nevertheless, the negative sovereign credit implications of such pressures are limited by currency flexibility, and reserve levels that are significantly higher in Asia than during the late 90s," it added.