In its latest sovereign credit outlook for the region, Fitch says: “This reflects both the deterioration in the outlook for the world economy and the lagged impact of policy tightening in some countries, including the region’s two giants, China and India. Emerging Asia’s resilience provides some support for high-income Asian countries relative to other advanced economies, although weak domestic demand and a strong currency make for anaemic growth prospects in Japan.”
The report goes on to say high inflation has led to a great deal of policy tightening, with regional annual average inflation of 5.9% expected for this year before dropping to 4.9% next year.
The two largest countries have their own weaknesses to resolve, with China’s banking system still struggling with the fallout from the credit crisis of 2009/10, while India has to deal with negative real interest rates alongside a high public deficit and debt burden.
The region still has a great deal of political risk to contend with – the change of ruler in North Korea being the most recent – as well as ongoing credit risk as Asia hosts four of the world’s nine highest-risk financial systems – Hong Kong, China, Indonesia and Sri Lanka.
