KUALA LUMPUR: Standard & Poor's Ratings Services says although financial markets appear to be coming out of a deep freeze, it remains early to say the global slowdown has bottomed.

It said on May 14 there were two scenarios for selected Asian sovereign fiscal performance over the next few years.

Its report, titled "Fiscal Health of Asian Sovereigns If 'Green Shoots' Wither," which was a "what-if" scenario, analysed the potential evolutions of selected Asian sovereign fiscal.

One scenario was S&P's baseline projections of economic development, in which Asian economies recover sometime in 2010 after steep declines in many of them. 

"In this scenario, the negative impact on sovereign credit ratings would be minimal, with the possible exceptions of those currently with a negative outlook-- Thailand, Vietnam, and India," said Standard & Poor's credit analyst Tan Kim Eng.

The other scenario was an extended recession, in which most of Asia dragged through four consecutive years of contraction.

“Even in this scenario, which we consider to be remote, our simulation indicates that fiscal pressures are not likely to lead to default although sovereign credit quality in many cases would deteriorate markedly,” Tan said.

The results suggest that, unless an investment-grade sovereign made major policy mistakes, most would remain in that category after an extended-recession scenario, even though their credit ratings could slip by one to four notches.

The resilience of these investment-grade sovereigns, with a few exceptions, stems from their relatively strong fiscal positions prior to the crisis. 

"These governments have years of fiscal consolidation and debt reduction, a sounder banking sector with higher capitalization and better risk management, and stronger external liquidity enhanced by more flexible exchange rate regimes," Tan said. 

S&P said the report was part of a global effort to provide greater transparency and insight to market participants through "what-if" scenario analysis.