Moody’s: APAC economies more exposed to virus impact


ASIA-PACIFIC (APAC) countries are more likely to be exposed to the economic impact of the novel coronavirus outbreak due to the stronger trade and tourism links to China.

The impact would hit traders in the APAC region before reaching commodity producers with indirect exports or imports to China, Moody’s Investors Service wrote in a report yesterday.

“Our baseline assumption is that the economic effects of the outbreak will continue for several weeks, after which they will tail off and the normal economic activity will resume.

“The direct impact of the outbreak on economic growth through multiple channels will centre on APAC and potentially some commodity exporters globally,” the rating agency said.

Yet, the impact of the coronavirus on countries in Europe and the Americas will be muted due to their more modest trade and tourism links to China.

Among other APAC countries, Malaysia’s exports are significantly exposed to the outbreak impact as China demands fewer goods due to the weaker manufacturing activity.

Meanwhile, other global commodity producers could be further impacted by both slower demand and volatile global commodity prices.

The economies most exposed to a fall in Chinese demand for goods include Malaysia, Hong Kong, Taiwan, Singapore, Vietnam and Korea.

“Globally, commodity producers — mainly in Africa, the Gulf and APAC, who have export bases that are exposed to China — are potentially exposed to both slower demand from China and lower prices globally,” the firm said.

In January, Brent crude oil fell 22.6% to US$53.3 (RM220.66) per barrel as of Feb 10, 2020, while iron ore and copper fell 8.3% and 10.2% respectively.

“We estimate that, unless demand from China bounces back very quickly, the direct impact of the outbreak on GDP growth for most exposed economies could range between 0.5% and 1.5% for every percentage-point decline in China’s GDP growth.

“These estimates are based on the value of exports from each country to China,” Moody’s said.

While the economic impact of the virus outbreak will subside in the second quarter this year, Chinese demand is expected to decline further as consumers are unable or unwilling to spend, while companies are operating below normal capacity as many factories face temporary shutdowns.

“As China’s economy has evolved into a consumption-driven model, it is currently representing a significant source of final demand, accounting for 10.9% of global goods imports in 2018, compared to 5.3% in 2003, when the SARS outbreak occurred,” the agency noted.

It added that should the outbreak prolong, global supply chains would be disrupted, while the anticipated extended fall in commodity prices would create a second round of economic impact.

While the disruptions — lasting from a few weeks to a few months — are likely to trim GDP growth for some economies, their credit profiles should be able to withstand a degree of moderation, particularly when balanced against fiscal and external buffers and the range of policy responses available to them.

“However, in a scenario where the outbreak results in severe disruption to production in China, sovereigns with already weak credit profiles that are significantly dependent on sales to China could face a negative credit impact,” Moody’s said.