Asia Pacific will see growing risks to its economic growth as a result of the Russia-Ukraine war, said Moody’s recently.
The increasing risk to the global economy will spill over to Asia Pacific through several channels — notably weaker growth, higher inflation and financial market uncertainty that will exacerbate pandemic-related economic scarring, the credit rating agency noted.
Despite relatively small direct economic and financial linkages with Russia and Ukraine, many Asia Pacific economies will face heightened macroeconomic risks stemming from the shock to global commodity prices and constrained access to industrial metals, said Nishad Majmudar, a Moody's Assistant Vice President and Analyst.
“Several economies risk backsliding on debt consolidation,” Majmudar warned.
More than half of rated Asia Pacific economies send more than 10% of their exports to major EU countries, whose growth will likely decelerate because of the spillover effects of international sanctions and restrictions on Russian energy imports, Moody’s pointed out.
The onset of more severe sanctions on Russia from February will generate further downside pressures to global trade, growth and access to raw materials, the firm added.
Higher commodity prices will weaken credit conditions for some utilities, transportation and other fuel-intensive sectors, but oil and gas exploration and production companies and some agricultural producers will benefit, the firm predicted.
In addition, Asia Pacific economies' constrained access to industrial raw materials from Russia and Ukraine will have indirect effects for firms involved in the production of semiconductors, electronics, autos and electric vehicle batteries, through higher prices of nickel, palladium and aluminium, Gartner pointed out.
Market volatility and currency depreciation pressures in the event of a prolonged military conflict will hurt the credit quality of sovereigns and speculative-grade companies with a significant dependence on foreign-currency commercial funding and high near-term refinancing needs, the firm estimated.
However, cybersecurity and sanctions compliance risks are low for Asia Pacific issuers, though some governments that have a vocal stance against Russia's invasion may be susceptible to financially motivated cyberattacks, Gartner said.