Moody’s forecasts a 3.6% trailing 12-month high-yield non-financial corporate default rate for Asia Pacific at the end of 2021, down from 7.3% in 2020, under its baseline scenario of economic recovery in Asia and continued fiscal and monetary policy support, the firm said in a recently published report.
“We expect APAC as a whole to register faster economic growth – led by China (A1 stable) – when compared with other regions, as the early containment of the coronavirus in major Asian economies has allowed resumption of manufacturing and daily activities, alleviating economic disruptions and in turn supporting corporate earnings,” said Clara Lau, a Moody’s Senior Vice President and Group Credit Officer.
Moody’s forecasts that China’s GDP will grow 7% in 2021, which will have positive spillover effects for the rest of Asia through trade and supply chain channels, Lau added.
In addition, central banks will likely maintain low interest rates until there are strong signs of progress toward their unemployment and inflation goals, the credit rating agency pointed out.
Though these accommodative monetary policies will support corporates’ liquidity, privately-owned enterprises with weak credit quality could face difficulty in assessing funding channels as banks and investors become more selective and risk averse, the firm pointed out.
The uncertainty around successful coronavirus containment poses risks to global and Asian growth prospects, and could increase refinancing risks as well as the default rate, Moody’s added.
In a pessimistic scenario, Moody’s APAC high-yield non-financial corporate default rate could reach 6.4% in 2021 if some of the downside risks, such as a prolonged and/or repeated lockdowns, lead to a worse economic outcome, the firm warned.