India remains less exposed to external risks because of its more resilient economic growth and the impact of positive policy reform momentum, global rating agency Moody’s Investors Service said in a report, which focuses on five Baa-rated sovereigns: Turkey, Brazil, South Africa, India and Indonesia.
The positive outlook on India’s ‘Baa3’ rating reflects its view that the relatively resilient growth and the policy reform momentum will slowly stabilize inflation, improve the regulatory environment, increase infrastructure investment and lower government debt ratios.
The latest views from Moody’s come close on the heels of Standard and Poor’s decision earlier this week to keep its rating for India unchanged at “BBB-minus” with a “stable” outlook.
Moody’s report, entitled “Baa-rated Sovereigns: Diverging Resilience to Developing Global Risks,” says that the main external risk facing emerging markets is the potential for a prolonged period of emerging market risk aversion, prompted by the anticipation of the normalization of U.S. monetary policy and the possibility of a sharper-than-expected slowdown in China’s growth. In some cases, country-specific challenges exacerbate this external risk.
In this regard, Moody’s cites India’s monetary tightening in 2013 as an “example of effective macroeconomic management that restored macroeconomic stability, albeit at the expense of near-term growth.
Moody’s expects GDP growth in India to be around 7-7.5 percent in 2015-16, the highest among the G20 economies, supported by lower oil prices that will reinforce gradual growth-enhancing reforms.
According to Moody’s, the trends in global capital flows have caused Brazil and Turkey to register the sharpest exchange rate depreciation and loss of reserves in the first half of 2015, while India proved comparatively resilient to these market developments.
Overall, Turkey stands out as most vulnerable to external risks because of its high reliance on external capital and large stock of external debt due annually, combined with heightened political risks.
While Brazil is less reliant on external capital, it has already experienced significant financial market turbulence because of the country’s weak growth outlook, ongoing deterioration of its fiscal metrics and challenging political landscape.
South Africa and Indonesia are primarily exposed to financial market turbulence through their trade links with China and a period of low commodity prices.
If Chinese growth is slower than expected, this could delay both countries’ cyclical economic recoveries and affect capital flows, the report says but adds that both countries have adequate resources to meet their needs in periods of adverse market conditions.
The material has been provided by InstaForex Company – www.instaforex.com