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Moody's sets negative outlook for APAC amid trade woes, reduced fiscal space

The outlook for sovereign creditworthiness in the Asia-Pacific region for 2020 has turned negative as trade tensions aggravate the ongoing global economic slowdown and amid the lack of fiscal ammunition to respond to shocks in some countries, Moody's said in a report.

Trade tensions between the U.S. and China would continue to bring uncertainty and volatility this year, despite a "phase one" deal, due to pending, long-term issues including industrial policy, intellectual property and market access, according to Martin Petch, vice president and senior credit officer at Moody's.

The effect of trade tensions will ripple across global supply chains, impacting economies including Hong Kong, South Korea, Singapore, Thailand and Vietnam, said Moody's, which projected the Asia-Pacific region's average GDP growth to decline to 4.0% in 2019-2021, from a 4.4% expansion over 2014-2018.

"The shock is now also extending to investment, with businesses putting off their expansion plans amid economic, political and policy uncertainties, which will hurt income growth, competitiveness and productivity in the long run," Petch said.

For countries like China, India and Pakistan, weaker growth prospects may further restrict the fiscal policy space of governments, limiting their ability to shield against external shocks, Moody's said. Slower growth may also complicate structural challenges including aging populations and potential job scarcity in countries such as the Philippines, Indonesia and Malaysia, the rating agency added.