FRIDAY, March 29, 2024
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Covid-19 could spell $211-billion loss for Asia-Pacific: S&P report

Covid-19 could spell $211-billion loss for Asia-Pacific: S&P report

Growth across the Asia-Pacific region will slow to 4 per cent this year, the lowest since the global financial crisis, due to the coronavirus outbreak, S&P Global Ratings said in a report out today (March 6), with the hardest-hit economies being Hong Kong, Singapore and Thailand.

A U-shaped recovery in the region should start later in 2020, but by then overall economic damage is likely to reach US$211 billion (Bt6.64 trillion), according to the S&P Global Ratings report titled “Covid-19 now threatens more damage in Asia-Pacific”.
The hardest-hit economies remain Hong Kong, Singapore and Thailand, where people flows and supply chain channels are large, the ratings agency said.
“It is no surprise that here we also see the most robust fiscal policy response, which will cushion the blow but not sharp downturns,” said S&P Global Ratings Asia-Pacific chief economist Shaun Roache. “We expect Hong Kong’s economy to contract by -0.8 per cent in 2020, Singapore’s to flat line, and Thailand’s expansion to slow to 1.6 per cent.”
Meanwhile, household spending in Japan and Korea “is set to weaken further, and slower growth in the US and Europe will add to external headwinds. China’s return to work is proceeding at a glacial pace as local officials remain cautious about a renewed upturn in infections”.
The coronavirus epidemic is not expected to inflict permanent damage on the labour force or capital stock. This means the region’s economies should be employing as many people and producing as much output by the end of 2021 as they would have done in the absence of the virus.
“Still, even a U-shaped recovery will mean a regional economic loss of about $211 billion that will weaken balance sheets. Some economic activities will be lost forever, especially in the service sector,” Roache said. This loss will be distributed across the household, non-financial corporate, financial, and sovereign sectors. The more governments step in to cushion the blow with public resources, the more the burden will be shifted to the public sector.
“We now expect China to grow at just 4.8 per cent in 2020 before rebounding strongly by 6.6 per cent in 2021. We make a very important assumption in our China forecast – that the government shows flexibility with its growth targets and steps lighter on the stimulus gas pedal compared to past downturns,” Roache noted.
Asia’s emerging markets such as Indonesia, Malaysia, the Philippines and India appear somewhat insulated, with less exposure to China and global supply chains, the ratings agency said. However, the outlook could get worse very quickly for two reasons. If low reported cases are due, in part, to minimal testing, then the viral spread is still possible, and could overwhelm weak healthcare infrastructure. Financial conditions could also tighten quickly.
“If investors ask for a much higher risk premium for emerging market assets, policymakers will have much less space to cut interest rates and boost public spending,” Roache said. “This could add to downward pressures on growth.”
Local coronavirus transmissions in Japan and South Korea add a new, highly uncertain dimension to problems in these economies. Households are likely to respond to a greater risk of infection by avoiding public spaces, which will depress spending on discretionary goods and services.
“In Japan and Korea, we estimate that discretionary consumption accounts for about 25 per cent of GDP. We now anticipate Japan’s economy will contract -0.4 per cent and Korea’s growth will slow to 1.1 per cent,” he said.
Australia is also quite vulnerable, with “growth in 2020 expected to touch 1.2 per cent, by our new forecast, well below trends”, he added.

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