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Fresh challenges hold back Asean

Political risks and rising levels of household debt in some countries in Asean pose are hampering the region from unlocking its potential, Moody's Investors Services said.

Moody’s Investors Service’s chief credit officer for Asia Pacific, Michael Taylor, said political disturbances could undermine credit fundamentals or exacerbate external vulnerabilities.

"If the political impasse in Thailand persists for the rest of 2014, we estimate that the economic cost will be significant, slicing off at least 2-3 percentage points from our pre-crisis forecast of 4.5 per cent real GDP [gross domestic profit]," he said at a conference in Manila yesterday that was organised by the Financial Executives Institute of the Philippines.

"We see the military coup in Thailand as further weighing on the country's economic performance, with the risk that political uncertainty will continue to dim the investment climate and dampen growth performance."

Along with Thailand, the countries highlighted by Moody's are Singapore, the Philippines, Malaysia, Indonesia and Vietnam.

"On the other hand, rising household indebtedness could constrain regional growth, particularly if Asean economies weaken, and if unemployment in the region rises, hurting consumer confidence and disposable incomes," Taylor said.

Putting the risk factors aside, Moody's noted that while the engine of global growth was shifting from the emerging to the advanced economies, Asean was generally insulated against global risks such as a slowdown in capital inflows as US Federal Reserve tapering progressed.

"While tighter global credit conditions will result in slower growth across the emerging economies, Asean economies generally should continue to perform well," Taylor said.

"Asean economies are less susceptible than most emerging markets to a slowdown in capital inflows as US Fed tapering progresses, and their export-oriented focus should benefit from a recovery in the US economy."

Moody's vice president and senior research analyst, Rahul Ghosh, said that while the overall outlook for Moody's-rated Asean corporates and banks was stable, firms faced a more challenging operating environment.

"Despite their enduring strengths, Asean corporates and banks face a more challenging operating environment in the coming quarters due to tighter credit conditions, a deceleration in the Chinese economy, and the emergence of political risk," Ghosh said.

Ghosh also pointed out that because Asean's exposure to Chinese demand had increased significantly in recent years, a prolonged slowdown in China would have a significant impact on the region’s corporates and banks.

As for the risks in Asean’s banking sector, Ghosh said such risks involved higher debt-servicing burdens for households and a correction in asset prices.

Nonetheless, the banking sector exhibits strong capital buffers and modest problem loans - factors which should provide sufficient support for their ratings.

On the rating trends for non-financial corporates, Ghosh said that while such trends were likely to be mildly negative in 2014 for Asia as a whole, Asean was better positioned than other sub-regions in Asia.


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