Comments
Standard & Poor's (S&P) says its move to downgrade US sovereign credit rating from AAA to AA+ would not trigger any immediate knock-on effect in terms of downgrades of emerging economies such as India.
At the same time, the resulting disruptions in global financial markets and weakened economic growth prospects in the US and Europe may require governments in emerging economies to use their balance sheets to support their economies and financial sectors once again.
But since the fiscal capacities of some of them — including India, Malaysia and Taiwan — have shrunk relative to pre-2008 levels, a renewed slowdown “(is) likely to create a deeper and a more prolonged impact than the last one”, S&P said in statement on the impact of its US downgrade on the Asia-Pacific region.
“The implications for sovereign creditworthiness in Asia-Pacific would likely be more negative than previously experienced, and a larger number of negative rating actions would follow”, the statement, issued on Monday, has warned.
The good thing about most emerging economies is that they are supported by sound domestic demand, relatively healthy corporate/household sectors, plentiful external liquidity and high domestic savings rates. However, a prolonged market disruption — given the inter-connectivity of global markets — could lead to increased spreads, reduced liquidity and heightening re-financing risks. This would most adversely impact highly-leveraged entities seeking rollover of debt or new funding.
Moreover, significantly weaker US demand would likely dampen sentiment worldwide and hence could place strong pressures on the profitability of exporters, Standard & Poor's has pointed out.
From indigo to navy blue
Speaking at a separate global conference call, the rating agency's Chairman of Sovereign Debt Committee, Mr John Chambers, indicated that its downgrade of US sovereign credit was not the end of the world. “Remember, this downgrade is from AAA to AA+, (which means) going from the highest rating to the next highest rating. We have 20 ratings from AAA to D for default. Symbolically it is important of course.. but it is just indicating going from indigo to navy blue”.
krsrivats@thehindu.co.in
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.