The Asia-Pacific (APAC) region remains a bright spot in the global economic landscape despite enduring challenges from soft global demand, U.S. tariffs, and domestic fiscal pressures. Fitch Ratings, in its latest regional outlook, projects APAC economies to continue outperforming much of the world in growth, even as fiscal space tightens and policy maneuverability narrows.
Fitch’s assessment points to a resilient regional outlook driven by underlying structural strength and policy adaptability. While global trade flows have weakened and the effects of prolonged tariffs from the United States continue to weigh on exports, the rating agency expects the region’s overall growth momentum to remain steady. Supportive factors include a softer U.S. dollar and ongoing monetary easing in several markets, where central banks retain room to reduce policy rates.
However, Fitch cautions that these growth-supportive policies come at a cost. Many governments across the APAC region are under pressure to balance fiscal prudence with the need for social and economic stimulus. Countries are increasing spending to shield households from the rising cost of living, even as inflation trends remain relatively mild — a sign of subdued domestic demand. This combination of limited fiscal headroom and expanding welfare commitments is testing governments’ ability to consolidate finances effectively.
The report highlights that fiscal consolidation across APAC has been modest since the Covid-19 pandemic, when debt levels surged due to emergency spending. Despite the gradual economic recovery, many economies are still managing elevated debt burdens, and fiscal buffers have diminished. Deep domestic capital markets have provided a temporary cushion, enabling some countries to finance deficits internally, but Fitch warns that the long-term sustainability of this model depends on prudent fiscal management and structural reform.
Adding to the challenge, Fitch notes that political and social unrest in parts of the region — including Nepal, Indonesia, and the Philippines — may lead to further spending pressures. Such developments can divert resources from development priorities and delay fiscal discipline, especially when combined with global economic uncertainty and weaker export revenues.
In terms of credit ratings, Fitch’s recent actions reflect a mixed picture for the region. Pakistan’s sovereign rating was upgraded from ‘CCC+’ to ‘B-’, a recognition of reform progress and renewed IMF engagement that has strengthened its fiscal stability. Uzbekistan also received an upgrade to ‘BB’ from ‘BB-’, supported by reform momentum and diversified funding sources. Conversely, China saw a downgrade from ‘A+’ to ‘A’ earlier this year, with Fitch citing rising public debt and slower economic transition as key risks to its fiscal outlook. Thailand, meanwhile, retains a Negative Outlook due to mounting political uncertainty, slower global demand, and a delayed recovery in tourism.
Fitch concludes that while APAC’s overall economic performance remains stronger than most regions, sustained growth will rely on effective fiscal management, targeted policy responses, and a stable political environment. The balance between supporting economic activity and maintaining fiscal discipline will determine how resilient these economies remain in the face of continued global headwinds.
Follow the PakBanker Whatsapp Channel for updated across Pakistan’s banking ecosystem.