According to S&P Global Ratings (S&P) report on Friday (6 March), the novel coronavirus (Covid-19) could cost the economies in the Asia-Pacific region US$211 billion (S$290.9 billion), sending these economies to its lowest growth trajectory in more than 10 years.
The further losses seen in the region’s stock markets yesterday (7 March) prompted this unfavourable prediction.
Based on the S&P report, the worst-case scenario can mean Hong Kong, Japan, and Australia possibly tipping into recession and China experiencing slower growth at less than 3 per cent.
Aside from Hong Kong, other countries such as Vietnam, Singapore, and Thailand would be hit the hardest, especially with tourism making up of about an average of 10 per cent of growth for these countries.
World markets and investors in at least 85 countries have been hard hit by the fears regarding the impact of the outbreak on the economy.
On Friday, Asia shares dropped, as shown by South Korea’s stocks declining by 2.2 per cent and Japan’s Nikkei stock index dropping 2.7 per cent at closing. Similarly, the Singapore Straits Times Index declined by 1.9 per cent to 2,960.98, marking a new year’s low. Also, stocks in Hong Kong dropped 2.3 per cent, while shares in China dropped 1.2 per cent and Australia’s shares fell 2.8 per cent at closing.
In addition to this, the United States stocks future showed further declines after a week of volatility whereas European shares opened significantly lower, with travel stocks mainly declining.
Shares across 47 economies fell by 0.7 per cent, as shown by the MSCI All-Country World Index, an index that tracks the shares of those countries.
The Asia-Pacific region will grow 4 per cent in 2020 due to the supply-demand shocks, based on S&P’s prediction. This is lower than the 4.8 per cent estimate in December last year, and it could mark the lowest rate since the 2008 global financial crisis.
“Asia-Pacific’s outlook has darkened due to the global spread of the coronavirus,” it said. “This will exert domestic supply-and-demand shocks in Japan and Korea. It will mean weaker external demand from the US and Europe,” the report stated.
The report stressed that due to the shocks to both demand and supply, with consumers being at home to protect themselves and declining supplies due to shuttered industries, the economies are impacted twofold.
However, S&P believes that health rebounds are still possible for the economies.
“A U-shaped recovery is likely to be delayed until the third quarter if signs emerge by the second quarter that the virus is globally contained… We assume that the coronavirus will not permanently impair the labour force, the capital stock or productivity – hence, the region’s economies should be employing as many people and producing as much output by the end of 2021 as it would have done in the absence of the virus,” it remarked.
China may take a hit on its gross domestic product (GDP) with losses of US$103 billion (S$142.00 billion) or 0.8 percentage point, whereas other developing countries in the region could suffer losses of US$22 billion (S$30.33 billion) or 0.2 percentage point, according to Asian Development Bank (ADB) on Friday.
“The magnitude of the economic losses will depend on how the outbreak evolves, which remains highly uncertain,” noted ADB.
