[Analytics] Impact of coronavirus epidemic to have widespread spillovers to the region and rest of the world

The escalation of the virus outbreak and slowdown in China would result in a deduction of 0.2 percentage points from ASEAN+3 growth, said AMRO in a note on Wednesday. The regional economy would be impacted by a sharp drop in Chinese outbound travel and tourism, a drop in regional travel and tourism, a decline in Chinese imports through the supply chain, and the transmission of the virus to regional economies. Mindy Tan specially for The Business Times.

Impact on financial markets

All regional bond markets saw a significant fall in yields, largely on the back of the fall in global yields, while idiosyncratic factors also played a role.

In terms of equity market reactions, tourism-related and energy stocks have weakened the most while healthcare stocks have gained. The materials sector has also responded negatively to the virus outbreak as demand from China is expected to fall.

Market performance has differed across countries, with Hong Kong, Korea, and Thailand among the worst hit. Among regional currencies, the Korean won and the Thai baht are the worst performers. Besides the impact on tourism and energy sectors, sharp declines in specific sectors such as consumer staples in Korea and Singapore, and materials (which include mining, metals and plastic) in Malaysia and Indonesia, point to expectations of significantly weaker demand from China and regionally.

Economic impact

There are several key channels through which economic activity in the region could be affected, including a virtual stop in tourism, a marked slowdown in China’s economy, disruptions to regional supply chains, public contagion avoidance behaviour, and domestic measures to control the outbreak.

AMRO noted that although the impact of SARS on Chinese tourism was already evident in the early 2000s, the effects will be significantly worse this time.

Individual countries in the region have benefited from the growing shares of Chinese tourists – more than 30 per cent in Cambodia, Korea and Vietnam, and about 30 per cent in Thailand and Japan. Prior to the SARS outbreak, this figure was less than 10 per cent in the region.