Beijing: To the list of headwinds facing economic growth in Asia add another: money’s getting expensive.
Corporate borrowing costs are marching higher amid a stock market rout, strong dollar and rising interest rates. Bloomberg’s Asia Financial Conditions index is at levels last seen in early 2016.
Simulations by the International Monetary Fund show that tighter financial conditions could lower Asia’s GDP by up to three quarters of a percentage point. The region accounts for over 60 per cent of global growth and is projected to grow 5.6 per cent in 2018 and 5.4 per cent in 2019.
‘Dollar appreciation has tightened financial conditions not only for Asia but emerging markets overall,” said Joachim Fels, global economic adviser at Pacific Investment Management Co. “It means we will see growth slowing further next year.”
Here’s a look at where money is getting pricey in Asia:
Spreads on emerging Asia dollar bonds are near the highest in over two years, indicating that it will be more expensive for the region’s borrowers to refinance debt.
A default by India’s troubled shadow bank Infrastructure Leasing & Financial Services Ltd. has sent yields for India’s top-rated state-run companies to around the highest level in three years. Funding costs have spiked as the nation’s so-called non-bank financial companies must pay a near record 1.2 trillion rupees (Dh60 billion) of commercial paper in October-December to mutual funds, according to data from Securities and Exchange Board of India.
Hong Kong lenders face a squeeze as three-month interbank borrowing costs, known as Hibor, are hovering around the highest since 2008. The city’s lenders face pressure to lift rates following the US Federal Reserve’s rate hikes, which could crimp the property market.
Yields on dollar bonds that bellwether Chinese developer Country Garden Holdings Co. sold in January have nearly doubled since then. That spike is symbolic of the tightening liquidity in China, where private-enterprise firms face a funding squeeze despite the nation’s recent measures to ease financial difficulties.
The tighter conditions in Asia are in line with a global theme that could upend growth worldwide, Oxford Economics’s Vanda Szendrei and Gabriel Sterne wrote in a note.
“A vicious spiral of worsening global financial conditions and slowing world growth is now a growing risk,” they wrote.