Emerging markets will face challenges in managing their economic recovery – but Asia is likely to fare better than other regions, according to Moody’s Investor Service.

“The pandemic was tougher on emerging Asia markets than it was on advanced economies… the recession was tougher in emerging markets than it was on advanced economies,” Atsi Sheth, managing director of credit service and research at Moody’s, told “Streets Signs Asia” on Monday.

Due to low vaccine rates, and the global spread of the Covid-19 Omicron, many countries are not seeing the same demand as they did before pandemics, Sheth added. Sheth said that tightening global monetary policy is also hurting market demand.

This week the Federal ReserveIt stated that it would end its loose monetary policy, and will aggressively reduce its bond purchases. To combat rising inflation, it also predicted three rate increases next year. Additionally, Bank of EnglandOn Thursday, the central bank raised interest rates from 0.1% to 0.25% for the first time in the history of the pandemic.

She stated that while emerging markets will have to manage the recovery, there will be many variations. You can see that Asia is doing better than any other region.

Sheth stated that although the Asia market is still strong, and supply side restrictions are decreasing, there are risks.

China’s slowing economic growth is one area to be concerned, due in part to current problems in its property sector. Sheth stated that the Chinese authorities possess the policy tools necessary to control the slowdown “in a measured way”.

It is presumed that the slowdown in the property sector will not be characterized as a financial crisis. “What’s happening in the property sector will be ring-fenced and it won’t lead to contagion across the financial sector.”

In the past few months, financial distress in Chinese real estate companies has been widely reported. China Evergrande Group as well as other developers — such as Kaisa and Sinic Holdings — struggle to repay their debt.

Another challenge for Asian countries would be inflation, Sheth said. This is especially true for some central banks, in terms of how much they can support the economy if the omicron variant threatens growth.

“This inflation that we’re seeing in many emerging markets is largely either food driven due to natural drought in some cases or energy driven… not something that monetary policy can address,” said Sheth.

That’s the reason why, she added, central banks are becoming very “data dependent the way they signal their next policy move in the ways they act.”