Moody's Investors Service said that despite the global slowdown and inflation risks, pockets of resilience still exist.
According to Moody's Investors Service, the global economy will slow down due to inflation remaining higher than expected. However, there may be "pockets" of resilience.
Marie Diron told CNBC on Thursday that she expects a global slowdown in economic growth. This will impact [emerging market] Asia in terms of trade conditions and access to finance in the region.
Diron said that the slowdown is due to three factors, including high interest rates, China's slower growth and financial system stress.
She said that while central banks have been able to "create a trend of disinflation" by increasing interest rates, the inflation risk is still a problem.
The managing director explained that there are still risks that inflation may prove to be more sticky than expected. This would increase the risks of slower and longer growth.
In March 2022 the Federal Reserve began its rate increases as inflation reached its highest level in 40 years.
The Fed Funds Rate has been raised by the U.S. Central Bank to between 5.5% and 5.25% in the past year-and-a-half. Fed Chair Jerome Powell warned last Friday that further interest rate hikes could be in the works.
Diron says that a second risk is the stress in the financial system.
She explained that banks had to adjust to the higher rates. This has led to some positive effects on margins, but businesses also needed to make adjustments to continue to attract depositors.
It could be that pockets of stress have yet to manifest but will later in the year or next year.
China is the third vulnerability.
Diron stated that Moody's does not expect a rapid turnaround in China's economy.
It is a really gloomy outlook, dominated by the downside risks. This could have an impact on default rates.
China's economy has been hit by a series of disappointing figures. The latest economic data have fallen short of expectations.
"Pockets for resilience"
Diron noted that while Moody's anticipates a slowdown in the near future, "pockets" of resilience may exist.
She acknowledged "we do see some slowdowns from this year to next year" but added, "We are seeing relatively robust growth in markets such as India and Indonesia."
Diron said that Indonesia has the potential to develop its "vast" natural resources and the downstream sector through the processing of minerals along the value chain.
Southeast Asia is home to large deposits of tin and nickel as well as cobalt, bauxite, and other important materials used in the production of electric vehicles.