PETALING JAYA: Fitch Solutions see significant downside risks to Asia’s growth outlook particularly in the first quarter due to the novel coronavirus outbreak in China, estimating that the region’s growth could slow to 4% from 4.3% in 2019 if China’s economy were to slow to 5.4% this year from 6.1% last year.
“We highlight that some countries have more policy space to support their economies and thereby cushion the negative impact of the epidemic. However, we remain concerned about those economies with weaker healthcare systems and macroeconomic fundamentals.”
It laid out two possible scenarios that could impact Asian economies, and in both cases, it noted that its initial view of a growth recovery in 2020, will be challenged.
The first scenario envisages the epidemic remaining mostly contained within China and only isolated cases are reported globally.
“Our current base-case and the main assumption we make is the possibility of China’s GDP growth in 2020 to be revised down in the range of 5.4-5.9% from our current forecast of 5.9%. We mainly focus on the growth impact this scenario will have through reduced tourism and trade flows in Asia,“ said Fitch.
China accounts for 70% of growth in emerging Asia, and close to 80% of intra-regional Asia-wide travel while receiving close to 40% of total exports of goods in Asia, which suggests that the disruption in China will weigh down regional growth.
A stoppage in outbound travel from China will significantly impact Southeast Asian countries. From a tourism perspective, Cambodia and Thailand stand out owing to their large tourism sectors as well as their relatively high dependence on Chinese tourists.
The second scenario envisages the crisis spreading across the Asian region and severely impacting countries with weak healthcare systems.
“We particularly highlight risks to countries that have limited fiscal space with high levels of government debt-to-GDP ratio and less developed healthcare systems.”
South Asian countries such as Pakistan and India that lag in terms of healthcare facilities could face a greater risk of widespread outbreak if exposed to the virus.
At present, Fitch believes that the first scenario is already playing out to a degree, and hence, the risk of a second scenario playing out is rising rapidly.
“Nevertheless, over the coming months we believe that the coronavirus epidemic will weigh on Asia’s growth at least in the first half of 2020. We note that while downside risks are exacerbated, several countries, particularly those with high savings rates and fiscal capacity, have already announced mitigating measures to cushion the blow.”
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