Credit crunch spreading to Asia, claims Global Insight

Countries across Asia, Eastern Europe, the Middle East and other emerging markets will be affected by the credit crunch and the resulting slowdown in growth, according to Global Insight’s latest Sovereign Credit Ratings Review.

It suggests that Eastern Europe and Asia could soon be hit by a string of downgrades following an increase in the number of countries placed on ‘negative outlook’ – the first step in a ratings downgrade.

The economies of a number of emerging markets are already overheating, affecting the ratings of countries including Vietnam, Ukraine, Romania and Bulgaria, as well as a string of countries in the Middle East.

The report claimed that inflation has become the new ‘risk premium element’ in wider emerging-market credit-risk spreads, with stock markets in these countries now generally converged with their western counterparts. Previous positive outlooks for countries such as Morocco, Mongolia and South Africa are now back to stable and few others remain above such levels.

The outlook was more positive for Latin American countries, however, with the credit rating of sovereign debt in both Brazil and Peru raised several times from BB+ to ‘investment grade’ BBB-, and Columbia likely to follow suit if its security situation and financials continue to improve. The forecast for Argentina, however, was less positive.

Recent upgrades on the ratings ladder in Indonesia, Philippines, Cyprus and Slovakia and general improvements in emerging markets during the past seven years were cited as positive developments, placing some in a stronger financial position to withstand any global downturn. Yet the research indicated that few would remain unaffected as the slowdown in growth radiating from US, Europe and Japan spreads through the global economy.