NEW YORK, April 15. /TASS/. Fitch Ratings expects economic growth in the Asia-Pacific (APAC) to slow as US import tariffs affect export flows and export-oriented investment.
"We believe Asian economic growth will slow as exports and export-oriented investment are hit by tariffs and high uncertainty. Lower global growth, weaker commodity prices and exchange rate adjustments will also affect APAC sovereigns, to varying extents," the international rating agency said in a statement.
APAC’s high trade openness and exposure to US demand leave it particularly exposed to US tariff risks, Fitch said, adding that in China, Vietnam, Taiwan, Thailand, and Korea, for example, manufacturing exports and investments are an important driver of economic growth, with the US being a major export market. "The 10% tariffs imposed on most countries globally are below the 15% that Fitch had assumed in our March Global Economic Outlook, while the effective tariff rates on China are higher than we expected," the statement reads.
Regional governments’ policy responses to the trade war will be key to its impact on APAC sovereign ratings, the agency noted. "Governments may opt to shore up economic growth with fiscal stimulus, for example. We believe some higher-rated jurisdictions have headroom to accommodate more fiscal support at their current rating level, including China, Singapore, and Taiwan. However, many APAC sovereigns have less headroom, given their high debt levels and limited fiscal consolidation since the pandemic. Sustained large-scale fiscal loosening could put downward pressure on some ratings, particularly if it led to a change in fiscal strategy over the medium term, as could be a risk in Thailand or Indonesia," according to the statement.
Slower global growth and weaker energy prices, lower domestic demand and generally moderate inflation could lead to swifter and deeper interest rate cuts than anticipated in much of APAC. Such rate cuts could moderate interest burdens somewhat for sovereigns able to fund themselves via domestic markets. Higher US tariffs could also cause the US dollar to appreciate against some APAC currencies, the agency said, adding that lower international oil prices and weaker domestic demand should reduce external financing needs for some jurisdictions and may contain the impact of higher US tariffs and slower global growth on exports.
Tariff rates remain very volatile, Fitch noted. Tariff rates could fall, for example as part of bilateral deals, with some countries with relatively lower tariffs benefitting from trade and investment diversion over the longer term.
On April 2, US President Donald Trump announced the introduction of tariffs on products from 185 countries and territories. Baseline tariffs of 10% came into force on April 5, while individualized ones became effective on April 9. Moreover, the US administration imposed 25% tariffs on all imported cars starting April 3. On April 9, Trump announced suspension of additional import tariffs imposed on a reciprocal basis for a number of countries and territories for 90 days. The White House explained that the pause was related to trade negotiations. During this period, a universal tariff of 10% will be in effect.