China’s slower growth, higher interest rates, and slower global demand are putting a dampener on corporate and financial sectors in Asia-Pacific.
However, the impact is uneven. Credit stresses emanating from the Chinese property sector have reverberated throughout China’s economy, squeezing businesses and consumers’ propensity to spend.
Across the region, credit availability is anticipated to become more selective as financiers turn increasingly conservative amid uncertain economic conditions. Meanwhile, trade activities are slowing, hurting the region’s export-dependent industries.
That’s according to a report published by S&P Global Ratings titled “Asia-Pacific Sector Roundup Q4 2023: A Skewed Recovery.”
China recovery encountering challenges
S&P’s Global Rating’s analyst Eunice Tan says, “China’s post-Covid economic recovery is encountering a host of challenges. At the same time, the ‘higher for longer’ interest rate environment means costlier borrowing will persist.”
Rising interest rate differentials with the US mean the region could see capital outflows, sparking domestic currency depreciation. With energy and food prices increasing, higher input costs could weigh on corporate profits and household’s discretionary spend.
The net rating outlook bias of Asia-Pacific issuers is steady at negative 2 percent, the same as last quarter.
However, the distribution suggests uneven credit conditions across sectors, pointing to a divergent recovery. For most sectors in the region (excepting gaming and consumer staples), risks are seen to be skewed to the downside.