Economic growth in Asia-Pacific, especially in the emerging markets, will generally remain strong in 2024, supporting sector outlooks across the region, according to Fitch Ratings Inc.
The global rating agency expects the real gross domestic product to expand at or above 5% in India, Indonesia, the Philippines and Vietnam. However, headwinds from slower Chinese growth, weak global demand and higher interest burdens weigh on many sectors' performance, Fitch said in a note on Tuesday.
However, the bulk of APAC's sector outlooks for 2024 remain neutral, it said.
Slower economic growth, lower rates and the government's adapting policy response will add to the headwinds faced by several sectors in China, Fitch said. "A sharper slowdown in China's growth than we assume would pose significant risks for China-based issuers in multiple sectors and would have adverse credit ramifications regionally."
The peaking of the rate cycle will affect the banking sectors of APAC's developed markets more than those in the emerging markets. Fitch expects the net interest margins and non-performing loan ratios to come under pressure in the developed markets in 2024.
"The degree of weakening will generally be modest, but we expect the worsening in asset quality following higher interest rates will be most marked in Australia and New Zealand," it said.
A sharper easing of monetary policy in the US than expected can allow governments in APAC to cut rates faster, reducing interest burdens for borrowers but adding to pressure on banking NIMs, according to the financial services firm.
Sino-US tensions have eased recently, but Fitch expects relations to remain challenging, which will lead companies to pursue supply-chain diversification to limit exposure to geopolitical risks. These trends can be a significant factor in outlooks in several sectors, particularly industrial and technology.
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