Virus toll hardest on Asia-Pacific

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STIFLING GROWTH: Analysts forecast the region’s growth slowing to 4 percent this year, with Taiwan’s GDP at 1.9 percent, but it could jump to 2.6 percent next year

  • By Chen Cheng-hui / Staff reporter

Worldwide economic damage from the COVID-19 outbreak could reach US$211 billion and would weigh heavily on economies in the Asia-Pacific region, S&P Global Ratings said.

The Asia-Pacific region, which has close trading relationships with China and high exposure to the coronavirus, could see losses extend from household and nonfinancial businesses to financial and sovereign sectors, it said on Friday.

However, as governments take measures to alleviate the effects of the outbreak, costs would be shifted to the public sector, the agency added.

Based on S&P’s latest estimate, economic growth across the Asia-Pacific region is forecast to slow to 4 percent this year, which would be the lowest since the 2008 to 2009 global financial crisis.

“Household spending in Japan and [South] Korea are set to weaken further and slower growth in the US and Europe will add to external headwinds,” S&P Global Ratings Asia-Pacific chief economist Shaun Roache said in a statement. “China’s return to work is proceeding at a glacial pace as local officials remain cautious about a renewed upturn in infections.”

S&P said it expects China’s economy to grow at just 4.8 percent this year ahead of a strong rebound of 6.6 percent next year.

“We make a very important assumption in our China forecast — that the government shows flexibility with the growth target and steps lighter on the stimulus gas pedal compared to past downturns,” Roache said.

Hong Kong, Singapore and Thailand remain the hardest-hit economies, as they have large flows of people and supply chain channels compared with other economies, S&P said.

The agency forecast Hong Kong’s economy would contract by 0.8 percent this year, Singapore’s economy would see flattish growth and Thailand’s expansion might slow to 1.6 percent.

Australia is expected to grow by just 1.2 percent in GDP this year, S&P said.

“Australia’s most-disrupted sectors employ a large share of workers, which will weaken both the labor market and consumer confidence,” Roache said, adding that the service sector accounts for almost 80 percent of total employment, but is highly vulnerable to the effects of the outbreak, particularly tourism.

S&P said Japan’s economy would likely contract by 0.4 percent and South Korea’s growth might slow to 1.1 percent this year, as local COVID-19 transmission in the two economies adds a highly uncertain risk to existing challenges.

“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 [South] Korea, we estimate that discretionary consumption accounts for about 25 percent of GDP,” S&P said.

S&P earlier cut its GDP growth projection for Taiwan to 1.9 percent this year, but forecast growth of 2.6 percent next year in expectation that the economy might jump back in the absence of the virus.

Other emerging markets in the region, such as Indonesia, Malaysia, the Philippines and India, appear somewhat insulated from the effects of the outbreak for the time being, as these economies have less exposure to China and global supply chains, the ratings agency said.

Still, S&P warned that their outlook could change and worsen quickly if an outbreak in those countries overwhelms their weak healthcare infrastructure, while financial conditions also tighten in the brief period.

“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 their economic outlook, he added.

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