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Trade war won't trigger rating downgrades for Asian nations: Fitch Ratings

Reuters/Indonesia 13 Oct 18 | 08:17 PM

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Fitch Ratings has maintained its stable credit outlook for all Asian countries, except Pakistan, despite expecting some "dampening effect" in the region due to the US-China trade tensions, senior ratings analysts said on Saturday.

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Concerns over the trade row between the world's two biggest economies have been high on the agenda at this week's International Monetary Fund (IMF) and World Bank Annual Meetings on the Indonesian island of Bali.

IMF managing director Christine Lagarde estimated that the escalation of current trade tensions could reduce global GDP by almost one per cent over the next two years.

ALSO READ: Trade war could hit growth, hurt 'innocent bystanders', warns IMF's Lagarde

Although Fitch has cut its growth outlook for China from 6.3 per cent next year to 6.1 per cent, it still maintained a stable outlook for China and nearly all of Asian markets' credit ratings, said Stephen Schwartz, head of Asia Pacific sovereign ratings.

Speaking on the sideline of the meetings, Schwartz said the tariffs that had been announced so far were not significant enough to impair the fiscal positions of the Asian countries, and therefore would not trigger rating downgrades.

ALSO READ: Double whammy: EMs brace for long struggle as Fed hikes meet trade war

The United States and China have slapped tit-for-tat tariffs on hundreds of billions of dollars of each other's goods over the past few months.

Large intermediate goods exporters to China, such as South Korea and Taiwan, may feel the biggest impact, but there is also a "significant chance" of production shifting out of China to markets like Vietnam and the Philippines, he said.

ALSO READ: Won't use yuan as a weapon in trade war with US: People's Bank of China

Emerging Asian countries also have the smallest foreign debt levels as a proportion of government debt compared to other regions, which provides some protection that other regions don't have, James McCormack, Fitch's top sovereign analyst, said.

Emerging market currencies have been battered by a strengthening US dollar, especially those economies running current account deficits, such as India and Indonesia.

McCormack said emerging markets should brace for further liquidity tightening as other major central banks end easing measures and may soon start tightening up policy, following the US Federal Reserve.

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