KUALA LUMPUR: Economic growth prospect for emerging markets is more cloudy than advanced economies in 2019 said Moody’s Investors Service.
“Growth will still be solid in advanced economies in 2019 (2.9% in G20 — group of 20 nations — in 2019), though growth outlook for emerging markets is more cloudy, with tightening monetary policy, rising trade protectionism and slower demand from China, which may have spillover effects to banks,” its associate managing director Andrea Usai said in a statement today.
He added that in recent years, the generally supportive operating environment overall will help banks to preserve to stronger capitalisation achieved in recent years.
In its report on “Banks — Global 2019 Outlook” which released today, Moody’s said geopolitical and domestic risks create the greatest source of uncertainty and risk in 2019, with US-China tensions spreading far beyond trade arguments.
“In addition, the risks of a ‘no-deal’ Brexit scenario under which the UK banks’ credit fundamentals would weaken, have increased.
“Meanwhile, domestic and political risks will continue to weigh on the outlooks for Argentina, Brazil, Italy and Turkey, with credit-negative implications for their banking systems,” it added.
Besides that, Moody’s said rising interest rates will help enhances profitability, providing some boost to banks’ net interest margins, as already seen in the US.
The global rating agency said emerging markets economies will remain vulnerable to spillover from monetary policy normalisation in advanced economies, because of a likely further tightening of global liquidity, combined with currency pressures.
Moody’s is expecting the US Federal Reserve to continue raising interest rates, with the upper bound of its target range peaking at 3.5% by the end of 2019. – The Edge Markets