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S&P warns further deterioration in global finance may trigger another recession

Standard & Poor’s Ratings, which created a storm by downgrading the US government’s credit rating from the top position for the first time since the second world war, said there are no immediate prospects for such a move on Asian countries.

It, however, warned that disruptions in financial markets may lead to the renewal of recessionary conditions in the US and Europe and this will in turn affect Asian economies are dependent on exports and foreign lending.

“…the U.S. rating change, together with the weakening sovereign creditworthiness in Europe, does point to an increasingly uncertain and challenging environment ahead… given the interconnectivity of the global markets, an unexpectedly sharp disruption in developed world financial markets could change the picture.

“It could lead the U.S. and European economies into deep contractions again, or further delay their recoveries. In this scenario, the experience of the global financial crisis of 2008-2009 shows that export-dependent economies with large exposures to the U.S. and/or Europe would feel the most pronounced economic impacts,” S&P said.

It added that “uncertainties in the global financial market and weakened prospects in the developed economies have further undermined confidence. The potential longer-term consequences of a weaker financing environment, slower growth, and higher risk aversion are negative factors for Asia-Pacific sovereign ratings.”

Among the Asian countries dependent on exports, pointed out in the report, are Thailand, Taiwan, Korea, Malaysia, the Philippines, Japan, Australia, and New Zealand.

Those have “weaker external positions” (in terms of dependence on foreign debt etc.) are Pakistan, Sri Lanka, Fiji, Australia, New Zealand, Korea, and Indonesia.

S&P has emerged as the most pessimistic ratings organization in the last few days. It cut the US credit rating by one notch even as its peers Fitch and Moody’s did not.

It said its “baseline assumptions” about the Asia Pacific remains where they were, but “uncertainties in the global financial market and weakened prospects in the developed economies have further undermined confidence.

“The potential longer-term consequences of a weaker financing environment, slower growth, and higher risk aversion are negative factors for Asia-Pacific sovereign ratings.”

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