Economic growth rates in Asia-Pacific are broadly rebounding and debt burdens stabilizing, giving rise to a stable outlook for sovereign creditworthiness in 2022. Still, the pace of recovery differs vastly, and some economies will experience deep economic scarring, according to a new report by Moody’s Investors Service.

  • Growth will rebound for most economies in the region, supporting a stabilization of debt burdens at higher levels than pre-pandemic
  • Policymakers’ ability to balance competing economic and social priorities will determine the pace of credit recovery and drive credit differentiation

Debt burdens will peak in 2022 and stabilize for most APAC economies, at higher levels than before the pandemic. The scope for further debt reduction will be limited, with deficits unlikely to decline significantly as spending pressures persist, leaving some sovereigns weakly positioned to respond to future shocks.

“About half of APAC economies will undergo a growth rebound in the year ahead, but differing degrees of exposure to vulnerable sectors and disparate approaches to reopening will result in a multispeed recovery. This will shape sovereigns’ fiscal and debt dynamics.”

Anushka Shah, a Moody’s Vice President and Senior Analyst.

Medium-term social and environmental concerns will move back into focus. In particular, the pandemic’s impact on income inequality and structural unemployment could spur further political challenges, while environmental risks and geopolitical tensions are returning to the fore.

Policymakers’ ability to balance competing economic and social policy goals, including the rebuilding of fiscal buffers, retraining attention on structural reforms and anchoring the credibility of medium-term frameworks, will drive credit differentiation and determine where the pandemic has left significant burdens on credit profiles.

Moody’s outlook for APAC sovereigns reflects its expectations for fundamental business conditions in this sector over the next 12-18 months, and does not reflect its outlook for individual issuers. Moody’s 2022 Outlooks explore the big credit trends and fundamentals shaping sectors and regions in the year ahead. Learn more at https://outlooks.moodys.io

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