Trade war won’t trigger Asian credit ratings downgrades, for now: Fitch

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NUSA DUA, Indonesia (Reuters) – 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 U.S.-China trade tensions, senior ratings analysts said on Saturday.

IMF Managing Director Christine Lagarde attends a news conference during International Monetary Fund – World Bank Annual Meeting 2018 in Nusa Dua, Bali, Indonesia, October 11, 2018. REUTERS/Johannes P. Christo TPX IMAGES OF THE DAY

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 percent over the next two years.

Although Fitch has cut its growth outlook for China from 6.3 percent next year to 6.1 percent, 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.

FILE PHOTO: China Shipping containers sit on a ship in the Port of Los Angeles after being imported to the U.S., California, October 7, 2010. REUTERS/Lucy Nicholson/File Photo

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.

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.

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 U.S. 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 U.S. Federal Reserve.

Reporting by Fransiska Nangoy; Editing by Shri Navaratnam

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