Moody's Investors Service says that the sovereign ratings in Asia-Pacific will remain largely stable despite China's slowdown, continuing global headwinds, and the volatility in global capital markets.
The steadiness in the outlook for sovereign credit in the region is further in line with Moody's conclusion that the outlook for global economic growth has also not changed significantly since Moody's published its Asia-Pacific 2013 Sovereign Outlook in January.
As before, support for the Asia-Pacific growth outlook is coming from the moderate pace of recovery in the US and the sturdy economic and fiscal fundamentals of most countries in the region. At the same time, the ongoing recession in the euro area still represents a prominent constraint.
Moody's conclusions were contained in its Asia Pacific 2013 Sovereign Mid-Year Update. The report is -- Asia-Pacific 2013 Sovereign Mid-Year Update: Broad Regional Stability Amid Continuing External Volatility as its title states -- an update to markets and not a rating action. Sovereigns in the region are likely -- as indicated -- to withstand continued market volatility as key metrics related to growth, fiscal, and external performance remain well-positioned.
As a result, Moody's does not see material downward pressures on the 21 of 22 rated sovereigns in the region with stable outlooks. The exception is Pakistan (Caa1) which has a negative outlook.
According to the report, although regional economic expansion has moderated since last year, it remains stronger relative to other regions.
The report says that the deceleration of the Chinese economy poses downside growth risks for the region, given the country's role as a major source of demand for Asia-Pacific's exports.
The extent to which growth slows will in part be determined by policymakers, as China attempts to rein in excessive credit expansion and fundamentally restructure its economy to reduce reliance on investment as a driver of growth.
The outlook for the global economy will also weigh on the growth prospects of China's economy, which has a high degree of openness.
The report also concludes that governments in the region are seen running relatively tight fiscal policies, or continuing with gradual fiscal consolidation.