Moody’s warns of increased geopolitical risks in Asia

Moody’s Investors Service Issues Warning about Geopolitical Tensions Between the Philippines and China

The international ratings agency, Moody’s Investors Service, has issued a cautionary report highlighting the potential for escalating geopolitical tensions between the Philippines and China in the West Philippine Sea (WPS) to negatively impact economic development in the region.

In a report released on January 15 as part of its Asia Pacific outlook, Moody’s cited the heightened tension between the two nations over the WPS in 2023, stating that it has become more strained. The report titled “Sovereigns – Asia-Pacific 2024 Outlook – Negative on weak global demand and deteriorating debt affordability” warned of the potential consequences of the strained relationship between the two countries.

According to Moody’s, the growing strains between China and the Philippines over competing claims in the South China Sea could have widespread implications for the region. The report also identified other geopolitical risks, including potential escalation in hostilities between South Korea and North Korea, as well as China versus Taiwan.

Despite the geopolitical strains, Moody’s mentioned that governments in the Asia Pacific region have maintained economic and financial ties and have remained neutral. The report emphasized that many governments intend to focus pragmatically on their economic interests despite unresolved geopolitical tensions.

The report also acknowledged the potential for trade deals to provide some stability, noting the US’s Indo-Pacific Economic Framework (IPEF) and the Regional Comprehensive Economic Partnership (RCEP) as examples of such initiatives.

However, Moody’s also highlighted the negative outlook on the region’s sovereign creditworthiness for 2024 due to a slowdown in China’s economic growth and weak global demand. The agency expects GDP growth for the 25 sovereigns in the region to decline to 3.6 percent in 2024 from 4.2 percent in 2023.

In light of these developments, Moody’s has assigned the Philippines with a “Baa2” sovereign rating, representing an investment grade, and has maintained a stable outlook for the country based on its recovering economy post-pandemic and moderate government debt.

Despite the challenges outlined in the report, Moody’s also noted that the Philippines has retained strong access to both domestic and international funding markets and possesses ample foreign-currency reserves to weather global capital flow volatility.

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