SOVEREIGN creditworthiness in the Asia-Pacific region will likely take a hit this year due to weak global demand and a deterioration in debt affordability, Moody's Investors Service said on Monday.

The debt watcher said its negative outlook was premised primarily on a slowdown in China, which would limit the region's output, tight funding conditions, and geoeconomic factors.

The outlook could be revised to stable, the debt watcher said, by "broadly firmer growth" that is driven by domestic demand, regional trade, and easing financial conditions.

For the moment, however, it expects "real GDP (gross domestic product) growth for the 25 rated sovereigns in APAC to decelerate to 3.6 percent in 2024 from 4.2 percent in 2023 — the lowest rate of expansion in a non-pandemic year in at least two decades — reflecting a slowdown in China and broadly lackluster global economic conditions," the debt watcher said.

Country-specific growth forecasts were not provided.

Moody's said it had a negative outlook for A1-rated China, where growth is expected to slow to 4.0 percent this year and in 2025 from 2014 to 2023's 6.0-percent average.

Along with China, Hong Kong (Aa3) and Macao (Aa3) also have negative outlooks out of the 14 APAC economies with investment-grade ratings. The rest, including the Philippines (Baa2), have stable outlooks.

Among others, Moody's noted that many tourism-dependent economies in the region are heavily patronized by Chinese visitors, the Philippines being an exception as it is more dependent on local travelers.

Also helping mitigate the likely impact of a China slowdown for the Philippines and other large emerging markets such as India, Indonesia and Vietnam would be stable domestic consumption that is supported by a robust labor market, the debt watcher said.

As for finances, Moody's expects the Philippines' financial balance to improve this year but fall below the regional median and interest payments as a percentage of revenues are expected to increase at a rate higher than the APAC median.

"India and the Philippines will continue to leverage gains in digitalization from the pandemic to increase revenue through stricter tax compliance and other administrative measures, without a significant broadening of the tax base that could prove politically unpopular," it noted.

Inflation, however, has remained above target and prompted continued monetary policy tightening, and any volatility from tensions in the Middle East and the impact of El Niño "could complicate monetary policy for APAC sovereigns, especially those most dependent on imported fuel and food."

With regard to geoeconomic issues, Moody's noted that tensions between China and the Philippines could have a wider impact on the region, but it also noted that political stability in the latter and in Malaysia and Thailand would provide space for reforms.