Inflation, supply disruptions top risks for Emerging Asia over next 12-18 months

KUALA LUMPUR: Inflation and supply chain disruptions are deemed the biggest risks over the next 12-18 months in Emerging Asia (EA), but Southeast Asian economies will increasingly benefit from supply chain diversification, according to Moody’s Investors Service.

Moody’s senior vicepresident Jacintha Poh said given the supply chain disruptions, multinational corporations (MNCs) have indicated a rising intention to relocate more manufacturing away from China.

“Nevertheless, Southeast Asian economies will increasingly benefit from supply chain diversification, as more MNCs adopt the “China +1” strategy,” she said in a statement yesterday.

Moody’s also said the potential impact of rising interest rates and slower economic growth are also among the risks expected to be faced by EA in the next 12-18 months, with tighter credit conditions expected to constrain large infrastructure funding needs over the next 12-18 months.

“Emerging markets will bear the brunt of the impact compared with other regions.

“As a result, multilateral development banks and governments will play an increasingly important role in bridging the funding gap for infrastructure projects in EA to offset credit difficulties and improve investor sentiment,” it said.

Nonetheless, Moody’s noted that high commodity prices due to the Russia-Ukraine military conflict had supported rated commodity producers’ credit quality.

“As a result, rated commodity producers in Asia reported strong earnings and cash flow, which they used for debt reduction, investments, or shareholder returns.

“These bumper earnings have supported producers amid regulatory risks and rising environmental, social and governance concerns,” it said.