Fitch Ratings has on Monday revised its 2025 outlook for the Asia-Pacific (APAC) technology sector to ‘deteriorating’ from ‘neutral’.

The rating agency said in a statement that the change reflects the direct downside risk that tariffs will hurt demand for hardware, as well as the likely second-order effects of weaker consumer spending and economic growth globally as tariff wars affect consumer confidence.

According to Fitch, compared to other regions, the APAC tech sector has greater exposure to these issues.

The region is the main assembly center for the world’s technology hardware, as well as the dominant manufacturer of most of the sector supply chain’s component parts.

It noted that consumer technology hardware items are typically discretionary purchases, easily deferred if consumers’ confidence wanes or their spending slows.

“We expect the US to be a tough market for consumer technology products this year,” it said.

On April 8, 2025, Fitch revised the outlooks on the US retail and consumer products sectors to ‘deteriorating’, from ‘neutral’.

Some companies with exposure to discretionary categories have already experienced negative rating actions, although most Fitch-rated US retailers and consumer product companies have sufficient rating headroom, which should support their ratings stability through the current volatility.

The rating agency also highlighted that APAC technology hardware businesses also face tough conditions in other major markets.

“We forecast consumer spending growth in the eurozone, Japan and the United Kingdom, will be weak, at 1 percent, 0.7 percent and 0.9 percent, respectively, in 2025,

“Our forecast for consumer spending growth in China is relatively robust for 2025, at 3.3 percent, but this is still below the 4.3 percent we had projected in December 2024,” it added.

According to Fitch, its rated APAC technology hardware companies will be less affected than most of their non-rated APAC peers and competitors, as rated entities are generally larger, more diversified and have greater financial flexibility.

“However, within our rated portfolio, we believe Renesas (BBB/Stable) and LG Electronics (BBB/Stable) have the lowest rating headroom,” it said.

It also highlighted that the outlook for different segments within the APAC semiconductor sector continues to diverge.

“We expect artificial intelligence (AI)-related demand will remain strong, but non-AI demand will be weak, with greater exposure to the likely tariff-related fall-off in demand for consumer electronics,

“The semiconductor industry faces ongoing supply chain challenges, which could affect production timelines and cost structures throughout 2025,” it said.

Fitch has a ‘neutral’ outlook for 2025 on the Chinese internet sub-segment.

It expects the internet majors’ strong business profiles, robust margins and large net cash positions to support their credit profiles, but their performance may diverge further.

“This is partly because we believe the mix of challenges and growth opportunities facing the market – including weak consumer spending, intense competition, and further deployment of AI across internet services – will have an uneven impact on the majors’ operational performance,” it said.

It also opined that the outlook for the Indian information technology (IT) services sub-segment remains ‘neutral’.

“We expect the sub-segment’s revenue growth to be affected by the slowdown in global economic growth caused by tariff uncertainty, leading to more cautious customer spending on external IT services,

“However, revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) growth will still be positive,” it said.

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