Moody’s sees ‘tough terrain’ ahead for emerging economies as Russia-Ukraine war extends

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LONDON — Rising economies will face a “robust terrain” for the subsequent few quarters as a result of Russia-Ukraine warfare, Atsi Sheth, world head of technique and analysis for Moody’s Buyers Service, stated on Thursday.

Whereas the general image is gloomy, commodity exporters will face higher outcomes than different international locations or corporations, she added.

The scores company forecasts in a report that just about 30% of rated non-financial corporations in rising markets would face “heightened credit score dangers” in a worst-case situation by which Russia’s invasion of Ukraine triggers a worldwide recession and liquidity squeeze, together with a suspension of power commerce between Europe and Russia.

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“Firms that serve customers are more likely to undergo slightly bit extra as a result of their wallets are going to be constrained by inflation,” Sheth stated at a convention.

Asian companies are extra extremely uncovered as a consequence of provide chain disruptions and restricted entry to funding whereas Latin American corporates are much less uncovered, the Moody’s analysis discovered.

In a much less extreme situation, the place commodity shocks, increased inflation and rates of interest crimp world development in 2023, some 8% of rising market companies would face heightened credit score threat, it discovered.

Automotive manufacturing is one sector that will proceed to undergo from provide chain disruptions.

On the sovereign stage, Sheth added that the credit score company was carefully monitoring elections in rising economies this 12 months, as demand for change amid financial and monetary hardship might result in political change.

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Colombia has first-round presidential elections on Could 29, whereas Brazil heads to the polls in October.

Credit score threat will increase when a democratic authorities modifications to an authoritarian one, and vice versa. Moody’s calculated that in 25% of such instances there are related defaults on the nation’s authorities bonds.

“That’s how social threat turns into a credit score threat,” she stated.

International locations which have caught with credible financial coverage aimed toward preventing inflation all through the pandemic and the Russia-Ukraine warfare will face much less monetary threat within the medium-term, Sheth added.

“Check out Turkey – the markets are type of punishing (it),” Sheth stated. (Reporting by Jorgelina do Rosario, enhancing by Karin Strohecker and Hugh Lawson)