S&P: Asia-Pacific growth firms up

Asia-Pacific growth is expected to hold up this year, but will be uneven across geographies and sectors, according to Standard and Poors Global Ratings.

The credit watchdog said rating outlook bias has deteriorated to negative 2 percent for the region as of end-May, underlining growing pressures.

“Recent trade disputes are straining diplomatic relationships between China and the West. Some sectors, such as auto and technology, are more vulnerable to rising risks from geopolitical tensions,” Eunice Tan, S&P Global Ratings’ head of credit research, Asia-Pacific, said.

Should the trade conflict intensify where other markets develop electric vehicle value chains locally, Chinese auto exports may be squeezed.

“They are diversifying their production base to Europe and Southeast Asia to cope. Similarly, the tightening of controls on Chinese tech exports could hit global tech trade and supply,” according to S&P.

Lenders turn selective

Meanwhile, onshore financing is still available, but lenders could turn selective toward riskier sectors (e.g., real estate in China and Vietnam), and households stretched most by high rates and cost pressures (e.g., in Australia, New Zealand, and Korea where unemployment is also rising).

Weaker domestic currencies can benefit the region’s chemicals, commodity and energy exporters.

These, however, would hit airlines, transportation cyclical, raw material or energy-intensive manufacturers, and domestic conglomerates with diminishing cost pass-through ability.

Local government spending could remain elevated in China, Australia and New Zealand, leading to growing debt levels.

In China, the protracted property downturn is pressuring local and regional governments’ revenues and could slow their deleveraging.