Chennai : The UK’s decision to exit the European Union will not have any significant credit impact on India and other countries in the Asia Pacific region, Moody’s Investors Service said on Monday.
However, in case of countries where fiscal and monetary policy space is constrained, a shift in portfolio and/or banking flows in some Asia Pacific markets might hurt growth, said the credit rating agency.
While the fiscal and monetary policy space is constrained in India its exposure to external financing is limited, it said in its latest report.
Moody’s does not expect the UK’s vote to leave the European Union to have a significant credit impact on Asia Pacific sovereigns.
“In particular, although lower GDP (gross domestic product) growth in the UK will dampen demand for products from the rest of the world, Asia Pacific’s direct trade linkages with the country are generally limited,” Moody’s said.
“However, in the months to follow, announcements related to Brexit could trigger market volatility. While not our baseline expectation, a shift in portfolio and/or banking flows that resulted in tighter financing conditions in some Asia Pacific markets would hurt growth, especially in countries where fiscal and monetary policy space is constrained,” Moody’s said.
Moody’s assume UK’s GDP growth will slow to 1.2 per cent in 2017, from 1.6 per cent this year, as uncertainty over future trade relations with the European Union results in lower investment and potentially lower household consumption.
“In our base case scenario, we do not expect Brexit (Britain’s exit of European Union) to have a significant impact on the EU economy as a whole. Also considering the limited exposure of Asia Pacific sovereigns to UK demand, we do not foresee a large impact on trade or GDP growth in the region,” Moody’s said.
“A prolonged period of lower portfolio or banking flows would imply tighter financing conditions and hurt GDP growth for the affected economies. Where monetary and/or fiscal room is available, policy easing could act as a buffer,” Moody’s said.
“In India and Pakistan, too, room for fiscal policy easing is constrained by a high debt burden, but the two sovereigns’ exposure to external financing is limited,” the credit rating agency said.