Fitch downgrades APAC outlook to ‘deteriorating’ with economy at risk of prolonged oil crisis
FITCH RATINGS said its outlook on Asia-Pacific (APAC) sovereign ratings was downgraded to “deteriorate” from “neutral,” citing risks to the region’s economic conditions following disruptions caused by the Middle East war.
Fitch said the change was due to a mid-year review. It issued a “neutral” call late last year.
“We have revised the 2026 sector outlook for APAC governors to ‘downgrade’ from ‘neutral’ in the 2026 Outlook, because the US-Iran war has increased risks to GDP (gross domestic product) growth, inflation, financial conditions and public finances,” Fitch said in a June 8 report.
It said that these risks arose due to the region’s high reliance on oil imported from the Middle East, when the US and Israel attacked Iran, and Iran’s attack on neighboring Gulf regions disrupted oil trade.
“Some countries, including Pakistan, the Philippines and Vietnam, have allowed domestic fuel prices to rise in line with global oil price hikes, which will reduce consumption and cause inflation and rapid fiscal tightening,” it said.
The three-month dispute has tested oil-importing countries. In the Philippines, pump prices have almost doubled from pre-war levels.
At the end of May, gasoline was sold between P72.40 and P109.50 per liter, diesel at P76.40-P98.50 and kerosene at P110.90-P140.
The fuel shock kept headline inflation above the central bank’s target for a third straight month, reaching 6.8% in May after peaking at 7.2% in April.
GDP growth was also affected by the oil shock, falling to 2.8% in the first quarter from 3% in the previous quarter and 5.4% a year ago.
In April, Fitch Ratings affirmed the Philippines’ long-term foreign currency issuer default rating at “BBB” but downgraded its outlook to “negative” from “stable.”
It said the country’s exposure to electricity shocks and reduced public investment have dampened medium-term growth prospects.
The last “negative” outlook for the Philippines from Fitch was in 2021, during the COVID-19 crisis. Most APAC countries still hold a “stable” outlook from Fitch. Five countries were given a “bad” outlook.
Earlier this year, Fitch downgraded its outlook on Bangladesh, Indonesia, and New Zealand to “severe,” as the war added to their domestic debt pressures.
The outlook for Thailand has been “bad” since last year.
“Financial and external pressures, as well as policy responses will be key in determining the impact of the US-Iran war on APAC credit profiles,” said Thomas Rookmaaker, head of Asia-Pacific Sovereigns at Fitch Ratings.
“The fiscal space has narrowed materially over the past seven years, and some governments are now under greater pressure to spend beyond the already high costs of defense and household support to reduce dissatisfaction with the high cost of living,” he added.
Fitch noted that the region should take a closer look at possible economic shocks due to further energy disruptions during the ongoing war, delays in financial integration, tax uncertainty and other national risks.
However, the credit rating agency said its outlook on APAC could be upgraded back to “neutral” if the war in the Middle East ends soon. – Katherine K. Chan
