The pandemic shock has increased the vulnerability of Asia's weaker credits though Asia’s China-led economic recovery is set to pull ahead of other regions, said Moody’s recently.
Asian countries with stronger governance and better control over the pandemic will face fewer strains on growth prospects and a quicker reversal of negative fiscal metrics, said Deborah Tan, a Moody's Assistant Vice President and Analyst.
“Still, government’s policy measures are unlikely to offset the fallout on growth over the next 12 months at least, despite the sheer scale of policy support in the wake of the pandemic,” Tan noted.
Economic activity and living standards for most of Asia in 2021 will be lower than the levels that were potentially attainable before the pandemic, with the greatest impact on the more vulnerable economies, Moody’s said.
Greater polarisation of credit quality is likely across the region, with vulnerabilities amplified for the weaker credits, the credit rating agency pointed out.
The share of negative outlooks across the sovereign, banking and corporate sectors has increased for 2021, the firm added.
The pandemic will speed up a number of secular shifts, widening the wedge in credit quality, according to Moody’s.
Supply chain reconfiguration, increased digitization and the capacity to address rising social inequalities resulting from a setback in living standards will have divergent effects across the region, the company added.
“Significant uncertainty remains around the future path of the pandemic and economic disruptions,“ Tan said.
Given this uncertainty, sudden shifts in sentiment could induce unstable capital flows in the region, although funding likely will be less of a constraint as a whole in Asia in 2021 than in 2020 because of ample liquidity, she warned.
Shifts in sentiment would challenge highly indebted Asian issuers, she added.