KUALA LUMPUR (Dec 8): Continued global headwinds imply lower gross domestic product growth for many Asia-Pacific (APAC) sovereigns in 2023, as well as higher interest costs and slower fiscal consolidation, according to Fitch Ratings.

In a statement on Wednesday (Dec 7), the agency said Asia's export outlook was deteriorating, and US Federal Reserve rate hikes had led to a strong US dollar, declining foreign exchange reserve buffers, and refinancing pressures for "frontier markets".

It said credit profiles of many investment-grade APAC sovereigns had shown resilience so far to the commodity-price shock and tighter global financing conditions.

Fitch said the outlook distribution among APAC sovereigns was fairly balanced for the APAC sovereign portfolio, with two negative outlooks (the Philippines and Maldives) and one positive (Vietnam).

The rating agency said the growth rates in APAC would generally remain higher in 2023 than in other regions, but both domestic and external demand would weaken for many sovereigns.

It said the rebound from the pandemic was still strong in many places, but should start to fade.

It said higher financing costs associated with the lagged impact of tighter monetary policy and elevated inflation were also likely to weigh on investment and consumption, amid less supportive fiscal policy settings.

Moreover, it said recession in Europe and the US, and a weak Chinese recovery, would impair demand for Asia's exports.

Fitch expected a reduction in fiscal deficits over the next few years for most APAC sovereigns, but generally at a slow pace, as structural consolidation measures were taken in few places.

Pre-pandemic fiscal deficit levels still seemed quite far off for many, even in 2024.

Slow fiscal consolidation meant that Fitch forecast a substantial reduction in public debt over the next few years for only a few APAC sovereigns, it said.