Uptrend in credit growth seen
CREDIT PROSPECTS are better for Asia-Pacific economies given that market fears that were prominent a year ago have largely abated, according to S&P Global Ratings in a report published recently, titled “Asia-Pacific Credit Conditions November 2017: Better Prospects, Fatter Tail Risks”.
“For 2018, the uptrend in credit conditions is likely to continue. We expect global economies to generally pick up and Asia-Pacific countries, especially China, to continue expanding their GDPs,” said S&P Global Ratings credit analyst Terry Chan.
“What’s more, the domestic and cross-border financing environment is still favourable – albeit with some tightening – indicating improving credit conditions than those a year ago.”
Growth in the region appears to be picking up on the back of a strengthening global economy in general and higher electronics demand. Roughly half of the region, led by Korea and Malaysia, is experiencing a boom in electronics exports. China’s growth post-Party Congress is likely to remain strong as well. Inflation and wage pressures generally remain contained with |little action on the central bank |front as our article “Asia-Pacific macro view buoyed by electronics exports surge,” provides a detailed view of our economic outlook for 2018.
The improving credit conditions have resulted in the net outlook bias in Asia-Pacific reducing to negative 7 per cent as of October 31, 2017, from negative 15 per cent a year ago.
Tail risks
However, tail risks – high-impact, low-probability threats – have become fatter. Conflict (North Korea), political, and trade (Trump) risks, while ebbing and flowing, remain.
Meanwhile, China’s debt and the region’s asset prices continue to climb. Taken together, the risk of investors pulling back liquidity, particularly from the region’s emerging markets, is still building up.
We consider asset repricing; China’s debt overhang; a liquidity pullback; and geopolitical, trade, and physical conflicts remain as Asia-Pacific’s top risks for 2018.
In particular, the region’s faster debt growth poses a looming threat, as indicated in our article titled, “Asia-Pacific debt growth 2018: Slightly faster growth, A touch more risk”.
We expect the region’s total debt to expand at a faster clip of 8.4 per cent in 2018, compared with our estimate of 7.5 per cent for 2017. This expansion could slightly lift the ratios of banks’ non-performing assets.
