Fitch Ratings: Economic growth in APAC will generally remain strong in 2024, especially in emerging markets (EMs), supporting sector outlooks across the region, says Fitch Ratings.

We expect real GDP to expand by, or above, 5% in India, Indonesia, the Philippines and Vietnam. However, headwinds from slower Chinese growth, weak global demand and higher interest burdens following the rise in interest rates over 2022-2023 will weigh on many sectors’ performance, and the bulk of our APAC sector outlooks for 2024 remain neutral.

Slower economic growth, lower rates and the government’s adapting policy response will add to headwinds faced by several sectors in China, reflected in a number of deteriorating outlooks, notably for property developers and banks. A sharper slowdown in China’s growth than we assume would pose significant risks for China-based issuers in multiple sectors, and would have adverse credit ramifications regionally.

The peaking of the rate cycle will affect APAC developed market (DM) banking sectors more than those in EMs. We expect net interest margins (NIMs) and non-performing loan ratios to come under pressure in DMs in 2024. The degree of weakening will generally be modest, but we expect the worsening in asset quality following higher interest rates will be most marked in Australia and New Zealand. A sharper easing of monetary policy in the US than we expect could allow governments in APAC to cut rates faster, reducing interest burdens for borrowers, but adding to pressure on banking NIMs.

Sino-US tensions have eased recently, but we expect relations to remain challenging, which will lead companies to pursue further supply-chain diversification to limit exposure to geopolitical risks. These trends could be a significant factor for outlooks in several sectors, particularly industrial and technology.