- Prolonged disruption from the coronavirus outbreak in China could tip some Asia-Pacific economies into recession, economists say
- Taiwan, Japan and Singapore all recorded declines in exports last month, while Indonesia has trimmed its growth outlook for the year
Economic growth across the Asia-Pacific is set for a pummeling following the coronavirus outbreak which economists have classified as not a typical business cycle shock.
Goods and commodity exporters that depended heavily on Chinese demand are most likely to bear the brunt of the hit, economists warned.
The coronavirus outbreak, which has been declared a global health emergency, could cripple many economies on the brink of a recession like Singapore and Japan and drag others in the region down with it.
"Hong Kong and Singapore will be hardest hit. Australia, Taiwan, Thailand, and Vietnam should suffer a material knock to growth while Korea would be vulnerable to supply-chain disruptions," S&P Global said. India and Malaysia would suffer the least.
New research and export figures have escalated concerns, with analysts warning that economies with a heavy dependence on Chinese demand should not underestimate the hit to growth.
Prolonged disruption into the second quarter would tip the region into recession, stress corporate cash flow which (will) have substantial credit implicationsS&P
A blow in the first quarter was a certainty but existing recessionary conditions in the Asia-Pacific would likely stretch out the slowdown, economists said.
"Our baseline is a temporary shock. Prolonged disruption into the second quarter would tip the region into recession, stress corporate cash flow which (will) have substantial credit implications," S&P said.
"The demand shock is centred mostly on (Chinese) consumers who are either unable or unwilling to venture out in public or travel overseas. The supply shock relates to the inability of firms to resume operations … this is a simplification and there are second-order effects."
The first to feel the hit would be sectors involving people flows such as travel, tourism and education, with supply chains a close second.
China's reduced imports of discretionary consumer goods would then deal a blow to exporting countries, while commodity prices would tumble, particularly oil, which was dependent on travel flow.
In particular, manufacturing, extractive and agricultural industries would struggle, credit rating agency Moody's said.
"Work stoppages " especially in quarantined areas " and disruptions to logistics and transport services within China are starting to curtail production elsewhere," it said.
"Reduced Chinese demand for Asia's exports and supply chain disruptions represent the two most direct transmission channels for slowing economic growth, although services trade adds a third channel."
On the ground in China there was mounting evidence of an increasingly flailing supply chain.
Reduced Chinese demand for Asia's exports and supply chain disruptions represent the two most direct transmission channels for slowing economic growth, although services trade adds a third channel.Moody's
Factories in many parts of the country have not resumed production due to the delayed return of workers, while ports were being jammed up with thousands of containers of frozen food which could not be distributed due to transport disruptions.
On Tuesday, China's emerging industries manufacturing purchasing managers' index (PMI), which gauges growth momentum in the country's hi-tech industries and is closely correlated with the official PMI, slumped 20.2 percentage points to 29.9 in February from 50.1 in January.
It was the lowest level since the measure was introduced in January 2014, reflecting the impact of the outbreak was already working its way through the economy.
The latest export and growth data has underlined the sensitivity of regional economies to the outbreak.
Singapore suffered another month of decline in exports to the United States and China in January. Both exports and imports fell last month compared to a year earlier, and the city state's government has said a hit to the economy was unavoidable.
Japan posted a goods trade deficit for the third consecutive month in January, also hit by weak exports to China and the US, government data released on Wednesday showed.
Exports declined for the 14th straight month, with shipments to China such as chemical products and car parts falling 6.4 per cent. Imports also fell for the ninth consecutive month.
On Thursday, Indonesia's central bank trimmed its forecast for the year's growth to 5 to 5.4 per cent from 5.1 to 5.5 per cent, mainly due to the coronavirus outbreak.
Taiwan's export orders contracted 12.8 per cent in January from a year earlier, worse than the consensus forecast of a 9 per cent plunge, and a dramatic fall from December's year on year growth of 0.9 per cent.
The extent of the damage from the outbreak, both on China and the Asia-Pacific, would depend on when it was brought under control, S&P said.
"Each additional month that policies designed to contain the outbreak remain in place imposes marginal economic costs on China and the region that we think are rising," it said. "In other words, each month's delay means a higher cost than the previous month."
Absent a further shock, S&P forecast China would return to pre-virus output levels by the end of 2021.
Kent Kedl, from consultancy Control Risks, told the Australian Chamber of Commerce in Shanghai on Thursday that China's economy would not lift until after June.
Moody's expected a "few more weeks" of interrupted production activity in the region before normal economic activity resumed.
China's economic growth fell 2 to 3 percentage points in the first three to six months of 2003 during the severe acute respiratory syndrome (Sars) outbreak, but Japanese investment bank Nomura said that was when the economy was much smaller.
With the Chinese economy now accounting for about 16 per cent of the global gross domestic product " four times larger than its size during Sars " the multiplier effect of the downturn in the world's second largest economy would be felt more acutely throughout the Asia-Pacific, Nomura said.
The soft cushioning offered by the signing of the US-China trade deal in January would offer little recourse, Goldman Sachs added.
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