KUALA LUMPUR: The wider and prolonged global spread of COVID-19 will cause an economic fallout in the Asia-Pacific region, according to S&P Global Ratings.
In its economic note today, it said it expects an approximately 4.0 per cent growth in 2020 and a US$ 211 billion income loss across the region from the coronavirus outbreak, with the losses distributed across households, firms, banks and governments.
“Our U-shaped recovery has been pushed back to later in 2020 due to a harder hit to China’s economy in the first quarter, viral transmission outside China, and tighter financial conditions.
“We forecast China to grow by 4.8 per cent in 2020 with a plausible downside scenario of below 3.0 per cent. Other economies including Australia, Japan and Korea will flirt with recession as growth falls well below trend,” it said.
S&P sees the risks as being on the downside, and that duration matters more than initial impact in light of the non-linear risks from virus transmission and financial conditions that emerging markets face.
“Asia-Pacific’s outlook has darkened due to the global spread of the coronavirus. This will exert domestic supply-and-demand shocks in Japan and Korea.
“We also reflect a harder first-quarter hit to China’s economy than we had anticipated. The final consideration is the tightening of global financial conditions that will amplify these economic shocks. We factor in global policy easing, but this will only cushion the blow,” it said.
It also said while the rest of Asia Pacific besides China would be on the recession borderline, the hardest-hit economies remain Hong Kong, Singapore, Thailand and Vietnam, where people flows are large.
“In all of these economies, tourism is a large share of gross domestic product (GDP) of almost 10 per cent on average and tourists from China account for a large share of visitors.
“Supply-chain exposures in the electronics and auto industries are also high. It is no surprise that here we also see the most robust fiscal policy response, especially transfers and subsidies to households and affected sectors.
“These measures will likely cushion the blow but they may be less effective than normal and will not prevent a recession,” said S&P.
Meanwhile, the investment house also noted that emerging markets such as Indonesia, Malaysia, the Philippines and India appear, at face value, somewhat insulated.
“Exposure to China varies but the dependence on large people flows and supply chains is quite low. One unique channel for emerging markets is foreign direct investment from China, Japan and Korea, which is likely to slow given disruptions in these economies.
“Reported infections are, for the most part, low. For now, this explains why we have not cut growth forecasts by more,“ it added -Bernama