Fitch says growth in Asian emerging markets remains stable

By Angela McDaniels

Seattle, Sept. 21 - Economic growth in emerging Asia is forecast to come in at 8.7% this year, according to Fitch Ratings. This is slightly greater than the 8.6% rate recorded in 2006, but the agency cautioned that the outlook is likely to deteriorate as capital flows to Asia and current account surpluses in the region decline.

On the question of emerging Asia's exposure to a global economic slowdown or a sharp reduction in risk appetite, Fitch senior director and head of Asia sovereigns James McCormack concluded that Asia is well placed to deal with credit market adjustments given the large stock of foreign exchange reserves, strong balance of payments positions and more flexible exchange rate regimes.

"The largest and fastest growing emerging markets in Asia - China and India - tend to rely more on domestic than external demand for growth. While these considerations may provide some comfort to Asian policymakers, Asia still remains vulnerable to slowdowns in global economic growth. Much of the investment in China, for example, is directed at the export sector, and India's domestic growth is financed to some extent by international capital flows," McCormack said in an agency news release.

Meanwhile, Ai Ling Ngiam, director in the sovereign team, said the Indonesian government's priorities on investment, exports and employment set the economy on a sound macroeconomic framework, while in the near term, prudent monetary policy will be key to managing potential stresses arising from the financial markets. Fitch currently rates Indonesia at BB-.

Touching on South Korea (A+/stable), she noted that while public and external finance resilience are supportive of the ratings, increasing short-term external debt and the growing government debt burden warrant monitoring.

Meanwhile, Malaysia's A- sovereign rating remains constrained by the high ratio of public debt to GDP and weak non-oil revenue buoyancy, Ngiam said, adding that Malaysia's bumper oil revenue and high capital spending by the government delay the structural reform process toward stronger fiscal consolidation.

Vincent Ho, associate director with the Sovereign group, highlighted rating strengths and weaknesses as well as current issues facing Hong Kong, Taiwan and Thailand. The agency said a number of factors, including demonstrated autonomy on economic and financial policies, a credible linked exchange rate system, strengthening external financial position and improving public finances, supported its upgrade of Hong Kong's long-term foreign-currency issuer default rating to AA from AA- in July.

"Along with the launching of different [Chinese yuan]-related financial services, the territory's role as an international financial center has become more diversified and unique in the region," Ho said in the release.

Despite its solid external financial position, Taiwan's sovereign ratings are constrained by cross-Strait relations and weaknesses in public finances and the banking sector, according to Ho. "The presidential election is due to be held in March 2008, which may be critical to Taiwan's economic development in the medium term," he said.

Thailand has been affected by domestic political uncertainty since late 2005, which has been a major rating concern. "However, the current interim government's commitment towards holding general elections by end-2007 looks promising, and could be a major step towards restoring political normalcy in Thailand," Ho said.

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