Covid-19 could mean $211B loss for Asia Pacific economies: S&P

Prime Minister Tun Dr Mahathir Mohamad addresses the ‘Beyond Paradigm Summit 2019’ in Kuala Lumpur July 17, 2019. — Picture by Mukhriz Hazim. Sketched by the Pan Pacific Agency.

KUALA LUMPUR, Mar 6, 2020, The Star. Growth across Asia-Pacific will slow to 4.0% in 2020, the lowest since the Global Financial Crisis, due to the Covid-19 coronavirus outbreak, S&P Global Ratings says, The Star reported.

“A U-shaped recovery should start later in 2020 but by then overall economic damage is likely to reach US$211bil, ” according to an article S&P Global Ratings published titled “Covid-19 now threatens more damage to Asia-Pacific.”

In the report issued on Friday, it said Asia-Pacific’s outlook has darkened mainly due to the global spread of the coronavirus.

“Household spending in Japan and Korea are set to weaken further and slower growth in the U.S. and Europe will add to external headwinds,” said Shaun Roache, Asia-Pacific chief economist at S&P Global Ratings.

“China’s return to work is proceeding at a glacial pace as local officials remain cautious about a renewed upturn in infections.”

He said the coronavirus epidemic is not expected to inflict permanent damage on the labor force or the 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 US$211bil that will weaken balance sheets. Some economic activities will be lost forever, especially for the service sector,” Roache said.

This loss will be distributed across the household, non-financial corporate, financial, and sovereign sectors. The more that 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% in 2020 before rebounding strongly by 6.6% in 2021.

“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,” he said.

The hardest-hit economies remain Hong Kong, Singapore, and Thailand where people flows and supply chain channels are large.

“It is no surprise that here we also see the most robust fiscal policy response which will cushion the blow but not sharp downturns. We expect Hong Kong’s economy to contract by -0.8% in 2020, Singapore’s to flat line, and Thailand’s expansion to slow to 1.6%, ” he added.

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