Fiscal deterioration Emerging Asia dangers ratings

Fiscal deterioration Emerging Asia dangers ratings

02-04-2009 15:02

In parts of emerging Asia the deterioration of the fiscal conditions could damage the supreme ratings. Wednesday Fitch Ratings reported that the economy will grow at its lowest pace since the financial crisis of 1997 – 1998. According to Fitch Ratings the non-Japan Asian growth will tumble to 4.2% in 2009 (against 6.9% in 2008). It is to expected that the gross domestic product of various nations in the region will show a decline.

Fitch's head of Asia-Pacific sovereign ratings, James McCormack, stated during a conference call: ‘Supreme ratings in Asia are being damaged by fiscal pressures and for that reason these countries will suffer further’.

In order to underline the fiscal worsening in the region, James McCormack stressed the cut in Sri Lanka's rating and the pessimistic prospects for the local ratings of India and Malaysia. He also stated that the pace of growth in Malaysia and India is the lowest since 1998. According to McCormack the economies of Taiwan, Singapore, Hong Kong, Thailand and South Korea will deteriorate in the next year.

The fall in external demand and the drop in internal consumption contributed to the slowdown of the growth in the region which until recently showed the highest growth.
Internal consumption in these economies will decline due to the weaker market conditions and as a result of the pessimistic wealth effect. ‘The property and equity markets in Singapore, Vietnam, Hong Kong, India, and China have been deteriorating or are deteriorated and for that reason the asset price deflation is very important’. McCormack declared that the labour market conditions are worsening in the region but the export sectors of the open economies already started to decline and will suffer the most.

He also believes that the announced stimulus packages, which consists of fighting the economic deterioration by increasing consumption, will not be sufficient to resolve the problems.

According to McCormack the gross domestic product in the region is smaller than in other parts of the world because tax cuts are more often saved instead of spent. In some countries the implementation of the spending programmes suffered from administrative obstacles and this also contributes to the smaller gross domestic product.