Most Asia-Pacific economies should be able to withstand rising external challenges such as monetary policy tightening in the U.S. and global trade tensions that are weighing down on currencies and economic growth, Fitch Ratings said in a report released Sept. 3.
The rating agency noted that most Asian currencies, particularly the Indonesian rupiah and Indian rupee, are facing downward pressure amid rising U.S. interest rates and increasing global risk aversion towards emerging-market assets that have fueled capital outflows. Add to that the ongoing trade dispute between the U.S. and China which continue to unnerve markets and threaten growth.
"Nevertheless, strong fiscal and external buffers, along with flexible policy frameworks, should allow most of the region's economies to weather these challenges," Fitch said.
The rupiah on Sept. 3 dropped to its weakest level against the dollar since 1998, CNBC News reported, with analysts attributing the continued decline to Indonesia's current account deficit and emerging-market jitters caused by the Turkish lira's fall. The rupee also fell to a new record low against the dollar, according to Bloomberg News, amid concerns over rising crude oil prices and trade tensions.
"Recent sell-offs in Indian and Indonesian currency markets underline their sensitivity to shifts in global sentiment, and suggest further bouts of pressure are likely as global monetary tightening progresses," Fitch said.
However, Fitch expects the currency volatility to have a limited impact on sovereign profiles, citing India's strong external finances and Indonesia's disciplined monetary policy stance and healthy fiscal buffers.
On the economic front, Fitch said strong domestic demand and exports drove economic activity in the first half of 2018. Growth momentum moderated in China and Japan, although it remained in line with the rating agency's expectations.
Fitch warned that the proposed U.S. tariffs on $200 billion of Chinese exports would escalate trade tensions and hit hard Singapore, South Korea and Taiwan because of their close supply chain linkages with Beijing.
Other Asia-Pacific economies, however, might benefit from lower oil prices and a shift in manufacturing out of China, said Fitch.