Global economic events will moderate A-P credit outlook in 2012, says S&P

KUALA LUMPUR (Dec 20): Mounting challenges across the globe could
severely test the resilience of sovereigns in Asia-Pacific, and the
uncertainty over sovereign debt and banking sector stability in the
eurozone is by far the biggest of these, according to Standard &
Poor's Ratings Services.

In a report entitled 'A Slowdown In
Europe And China, And Sluggish Exports Moderate Asia-Pacific Credit
Outlook In 2012' released on Tuesday, S&P said global risks had
steadily increased over the year, with economic growth marked down.

It said that while emerging markets were holding up, the base case was
for weak growth in the US and a mild recession in the European Economic
and Monetary Union (eurozone) in the first half of 2012.

'The European crisis poses risk, albeit indirect, to sovereigns and banks in Asia-Pacific.

'Nevertheless, the inherent strengths of the regional governments and
financial institutions partly mitigate the risk,' said the report.

S&P credit analyst Ian Thompson in a statement said that in
contrast to the economic and financial challenges plaguing Western
governments, economic growth fundamentals and government fiscal
positions in Asia-Pacific were generally sound.

"The region,
however, cannot remain immune to the problems in the advanced economies
given that Europe is an important trading partner.

Slowing growth in China will be another key issue to watch out for,' he said.

The report said volatile surges in capital inflows and rapid reversals
were likely as investors vacillated between higher returns and increased
safety, adding that surging capital flows may reignite inflationary
pressures, distort currency values, and create asset bubbles in
Asia-Pacific.

It said exports could also fall sharply as demand
in the developed markets remains constrained, and that the risks were
higher for Korea, Taiwan, and Singapore.

"Mounting challenges
across the globe could severely test the resilience of sovereigns in
Asia-Pacific. The uncertainty over sovereign debt and banking sector
stability in the eurozone is by far the biggest of these challenges,"
said Mr. Thompson. "

Thompson said the speed and effectiveness
with which the European debt crisis is alleviated would determine the
2012 outlook for banking systems in Asia-Pacific.

'That said,
most banking systems in the region have strong retail deposit bases,
which provide a buffer against volatility in wholesale funding markets,'
he said.

The report said that the 2012 credit outlook for the
Asia-Pacific corporate sector was generally stable with patches of
weakness.

It said economic growth prospects in the region
remained resilient despite a softer US economic outlook and the
uncertainty surrounding European sovereign risks.

'Asia-Pacific's public and private infrastructure sectors are also expected to continue to expand in 2012.

'Strong demand, broad-based economic activity, significant ongoing
capital expenditure requirements, and favorable demographics should
continue to fuel growth in several sectors,' it said.

S&P
said the stable performance of assets underlying securitisation
transactions in Asia-Pacific, with the exception of Japanese commercial
real estate, would likely continue in 2012.

Modest macroeconomic
growth forecasts, low regional unemployment rates, easing monetary
policy, and well-seasoned asset portfolios underpin performance,' it
said.