South China Sea Row Shows Tensions, Small Credit Impact: Moody’s
(Bloomberg) -- Arbitration court ruling on South China Sea has minimal immediate credit implications for China and Philippines but highlights risk of escalation in geopolitical tensions, Moody’s says in report Thursday.
- “We currently assess geopolitical strains to have a very low risk of weighing on China or the Philippines’ credit quality,” Moody’s says in report by analysts led by Marie Diron and Christian de Guzman
- “Nevertheless, the dispute does highlight geopolitical issues for the two countries and for the region as a whole”
- “While we do not expect either China or the Philippines to deliberately escalate the situation, any heightening in tensions would be credit negative for both sovereigns, and could have implications for other countries in the region”
- Ratings co. says adverse scenario of escalating tensions presents risks of higher defense spending that could hurt fiscal strength; other risks: damage to economic links and growth, and risks of flare-ups
- It is unlikely ruling will significantly impair trade through the South China Sea “but worsening geopolitical strains could pose further headwinds to economic growth in the region”
- Philippines does not have fiscal space to ramp up defence spending, so is likely to rely on other means to address tensions
- If tensions were to escalate, Philippines could see weakened trade with, and lower financial flows and tourist arrivals from China
- Any escalation of tensions could jeopardise China’s overseas economic development strategy
- Link to Statement:Link
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HALISTER1Source: BFW (Bloomberg First Word)
People Christian De Guzman (Moody's Corp)
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