Geopolitical risks loom larger in Asia – Moody’s

Cites PH row with China over WPS

Ratings firm Moody’s Investors Service has cautioned that geopolitical tensions between the Philippines and China in the West Philippine Sea (WPS) could escalate and affect the region’s economic development.

In a Jan. 15 report of its Asia Pacific outlook (“Sovereigns – Asiapacific 2024 Outlook – Negative on weak global demand and deteriorating debt affordability”), Moody’s cited the row between the two nations over the West Philippine Sea (WPS) in 2023 as becoming more strained.

The ratings agency said “greater strains in China's relationship with the Philippines over competing claims in the South China Sea over the past year could have more widespread implications for the region.”

However, it also noted that many governments have sustained “prevailing economic and financial ties despite strains between China and the US” in the region, and this includes the Philippines.

Other than the heating PhilippineChina row over the WPS, Moody’s in the report cited other “more prominent” geopolitical risks such as the potential for an escalation in hostilities between South Korea and North Korea, as well as China versus Taiwan.

It also noted forthcoming elections especially in countries where leadership transitions invite some uncertainty, as in the case of Indonesia, when it comes to geopolitical relationships with the US and China.

As for Asia, Moody’s said it expects “relative domestic political stability to provide some space for reform in Malaysia, the Philippines and Thailand” while expressing some concern over Japan’s political fundraising scandal.

The ratings agency said geoeconomic fragmentation is expected to gradually proceed amid continued trade engagements in the region.

“Despite geopolitical strains stemming from competition between China and the US, APAC'S (Asia Pacific) well-established economic, trade and financial ties have undergone a reconfiguration, rather than outright disentanglement. This reflects the intention of many governments to focus pragmatically on their economic interests despite unresolved tensions in the Korean Peninsula, the South China Sea and Taiwan Strait,” said Moody’s.

Among regional trade deals are the US'S Indo-pacific Economic Framework (IPEF) and the Regional Comprehensive Economic Partnership (RCEP) which both materialized in 2022.