Asia-Pacific credit volatility expected in 2025 amid slow growth: S&P

Forecasts on credit conditions become unstable as trade and foreign policy under Trump 2.0 administration remain unclear

Asia-Pacific credit conditions are expected to become increasingly unstable in 2025 as trade and foreign policies from the incoming United States administration remain unpredictable, according to a report by S&P Global Ratings. The report, “Credit Conditions Asia-Pacific Q1 2025: Bracing For Volatility,” predicts a slowdown in the region’s economic growth, alongside intensifying financial challenges.

 

Slower growth amid trade tensions

The report highlights that new US tariffs targeting Chinese exports could weaken China’s export-driven economy.

 

Eunice Tan, head of Asia-Pacific research at S&P Global Ratings, stated: “A slower China and softer global trade will squeeze revenue and growth for export-centric Asia-Pacific.”

 

Geopolitical conflicts and extended tariffs could disrupt energy prices and supply chains, further straining businesses. Companies unable to transfer rising costs to consumers are likely to face significant margin pressures.

 

Trade-dependent economies at risk

Trade-reliant Asia-Pacific economies, such as Vietnam, Thailand, Malaysia, and India, are particularly vulnerable to universal tariffs due to their significant trade surpluses with the US. A global slowdown in trade could dampen revenue streams and restrict growth prospects for exporters in the region.

 

The report projects the region’s overall growth rate to decline to 4.2 per cent in 2025, with a further dip to 4.1 per cent in 2026. While domestic consumption in emerging Asia remains a supportive factor, external pressures weigh heavily on the broader economic outlook.

 

Impact of US policy shifts and tariffs

The incoming US administration’s trade policies, labelled “Trump 2.0,” are expected to exacerbate economic challenges. Additional tariffs on Chinese goods could suppress exports, reduce investments, and heighten deflationary pressures in China.

 

S&P forecasts China’s growth to drop to 4.1 per cent in 2025 and 3.8 per cent in 2026, further hindered by unsold property inventory in lower-tier cities and limited fiscal support for domestic consumption.

 

Energy and geopolitical concerns

Rising geopolitical tensions, including ongoing conflicts in West Asia, the Russia-Ukraine war, and US-China friction, could destabilise energy prices and disrupt supply chains. Net energy-importing nations in Asia-Pacific may see worsening trade balances and increased production costs.

 

Monetary pressures and currency volatility

Resurgent inflation in the US could slow monetary easing by the Federal Reserve, keeping the US dollar strong. This would pressure Asia-Pacific central banks to maintain higher interest rates to prevent capital outflows. Emerging market borrowers and highly leveraged firms face significant risks as access to offshore funding narrows and costs rise.

 

Potential rate hikes by the Bank of Japan could amplify market volatility. Abrupt adjustments in yen-based investments may expose funding vulnerabilities for some borrowers and increase interest burdens for Japan’s debt-heavy economy.

 

Additional risks

Structural risks such as climate-related disruptions, energy transitions, cybersecurity vulnerabilities, and rapid technological adoption add further complexity to the credit landscape. Lenders are likely to demand higher risk premia, making borrowing more expensive and creating additional hurdles for businesses seeking credit.

 

By November’s end, the net rating outlook bias for Asia-Pacific issuers had already slipped to negative 4 per cent, compared to negative 2 per cent in August.