Nov. 23 – Among emerging Asian countries, China, India, and Indonesia appear to be in a fairly strong position to withstand the fallout from the volatile global economy while Malaysia, Mongolia and Thailand seem too vulnerable to cope with an external shock, Fitch Ratings said in a report released this week.
In the report “Emerging Asian Sovereign Pressure Points,” the credit rating agency estimated the potential exposure of emerging Asian economies to the global downturn triggered by the European Sovereign Debt Crisis still looming over the Eurozone. Balance in trade, flexibility of government policy, and emerging Asia’s performance in dealing with the recent Global Financial Crisis will help most countries in the region to overcome further shocks from Europe and the United States.
“Exposure to a sharp deterioration in global market liquidity as judged by the adjusted liquidity ratio appears greatest for Indonesia, South Korea and Malaysia, and more limited for China, Taiwan and the Philippines,” the report said. A “sudden stop” in external financing would appear to have less of an impact on the emerging Asian region, with only Sri Lanka and India running deficits on their basic balances, it added.
China and India will benefit from their relatively stable economies and will be less exposed to a global growth shock, but the two countries have less tolerance for policy stimulus at their current rating levels. By contrast, Indonesia appears to have the greatest scope for policy stimulus.
Malaysia, Mongolia and Thailand – the three most open markets in the region – experienced the largest shock to GDP growth in 2008-2009, the firm said, adding that the Asian countries that are least open to trade apparently suffered smaller shocks to growth during the same period.
In addition to trade openness, a significant decline in global commodity demand could be another primary reason explaining growth shocks in those regions in 2009.
“A downturn in the global economy would likely hit commodity prices with potential consequences for the region’s commodity exporters and importers,” the report said.
However, countries such as India, China, South Korea and Taiwan are likely to benefit if there’s a sudden drop in commodity prices as they are significant net resource importers.
According to the firm’s analysis, the entire emerging Asia region seems well-equipped to handle the global economic deterioration.
“The current account balances for [emerging] Asia suggest the region as a whole is well placed to handle a liquidity shock,” Fitch ratings concluded.