Moody’s Investors Service expects default rate for high-yield non-financial corporates in Asia Pacific (Apac) to remain high at six per cent in 2020, up from 1.1 per cent last year.

The rating agency said while policy stimulus would provide companies with some relief, it would not fully offset escalating credit risks.

Moody’s said the Apac trailing 12-month high-yield default rate for non-financial corporates was 5.3 per cent at the end of June 2020, higher than 2.3 per cent for the same period last year.

There were eight defaults in the first half of 2020, half of which were distressed exchanges.

Moody’s senior vice president and group credit officer Clara Lau Wai-ping said the second quarter of 2020 was likely to be the worst quarter for global economic contraction since World War II, with no quick recovery in sight.

“The ability of businesses to recover will depend on the pace of a rebound in consumer demand, which in turn hinges on governments’ ability to restore confidence by reducing fear of contagion.

“But new widespread outbreaks, if they occur, will cause renewed economic disruptions,” she said.

Moody’s said under a pessimistic scenario, where a longer period of suppressed consumer spending amid the pandemic leads to worse-than-expected economic conditions, the Apac high-yield non-financial corporate default rate could reach as high as 8.1 per cent this year.

It said central banks were likely to maintain their highly accommodative policy stance to ensure stable market liquidity until a steady recovery trajectory in both output and employment emerges.

“This will alleviate near-term liquidity and refinancing pressure. But the damage to companies’ credit fundamentals will continue to weigh on growth prospects, reducing their ability to withstand further economic disruptions,” it added.