Moody’s Outlook for Asia-Pacific Sovereign Creditworthiness in 2024 Amidst China’s Economic Slowdown

Moody’s Investors Service has expressed a negative outlook on sovereign creditworthiness in the Asia-Pacific region for 2024. The key factors contributing to this outlook include China’s decelerating economic growth, tight funding conditions, and geopolitical risks.

China’s recovery from the Covid-19 pandemic fell short of initial 2023 expectations, with the GDP for the last quarter of 2023 increasing by 5.2%, missing the estimated 5.3% in a Reuters poll. Moody’s anticipates China’s real GDP growth to slow to 4% in 2024 and the following year, down from the 6% average observed between 2014 and 2023. The credit rating agency underscores China’s significant influence on Asia-Pacific economies due to its robust integration into global supply chains.

Major international investment banks, including Goldman Sachs and Morgan Stanley, predict a slower growth pace for China’s economy, forecasting 4.6% in 2024, down from the expected 5.2% in 2023.

Moody’s highlights tight funding conditions as an additional factor weighing on Asia-Pacific sovereigns. Christian De Guzman, Senior Vice President at Moody’s, emphasized that this is influenced by global liquidity conditions, anticipating no deviation in Asia-Pacific central banks’ responses.

The report acknowledges the Federal Reserve’s decision to maintain interest rates at a 22-year high in December. However, it expects three cuts in 2024 as inflation eases. High interest rates are projected to hinder substantial improvements in debt affordability, making international financing challenging for lower-rated sovereigns.

Geopolitical risks stemming from strategic tensions between China and the U.S. are another area of concern. As the divide between these economic giants widens, maintaining a balance becomes more challenging for countries with significant economic ties to both.

The report suggests that nations with large manufacturing bases and improving infrastructure, such as India, Malaysia, Thailand, and Vietnam, might find opportunities as companies seek to diversify supply chains away from China to mitigate geopolitical risks.

Moody’s suggests that a broadly firmer growth, driven by domestic demand and regional trade amid easing financial conditions, could potentially improve the overall outlook for the region to stable.

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