Global economic events to moderate Asia-Pacific 2012 credit outlook: S&P

In contrast to the economic and financial challenges plaguing western governments, economic growth fundamentals and government fiscal positions in Asia-Pacific are generally sound.

With expected weak growth in the US and a mild recession in the European Economic and Monetary Union (eurozone) in the first half of 2012, the European crisis poses indirect risks to sovereigns and banks in Asia-Pacific.

However, the inherent strengths of the regional governments and financial institutions will partly mitigate the risk, says a report, A Slowdown In Europe And China, And Sluggish Exports Moderate Asia-Pacific Credit Outlook In 2012, published today by Standard & Poor's Ratings Services.

Ian Thompson, Standard & Poor credit analyst, says, "The region, however, cannot remain immune to the problems in the advanced economies given that Europe is an important trading partner. Slowing growth in China will be another key issue to watch out for."

According to the report, volatile surges in capital inflows and rapid reversals are likely as investors vacillate between higher returns and increased safety. Surging capital flows may reignite inflationary pressures, distort currency values, and create asset bubbles in Asia-Pacific. Exports could also fall sharply as demand in the developed markets remains constrained. The risks are higher for Korea, Taiwan, and Singapore.

Thompson says that mounting challenges across the globe, especially uncertainty over sovereign debt and banking sector stability in the eurozone, could severely test the resilience of sovereigns in Asia-Pacific.