SARS to choke growth in Asia, but not India: S&P
Wednesday, 16 April 2003, 19:30 IST
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NEW YORK: The outbreak of the Severe Acute Respiratory Syndrome (SARS) will lower growth rates for most economies in Asia for 2003, but India will be the least affected, says Standard & Poor's. The gravest damage will be inflicted on Hong Kong, according to the rating agency. In an analysis entitled, "Respiratory Disease SARS Chokes Asia Pacific Growth, But Sovereign Ratings Are Secure", Standard & Poor's lambasted China for its slow and secretive response, and noted the virus has spread far and wide, with cases reported from Japan to New Zealand to Canada. Within Asia, the virus has affected not just tourist arrivals and consumer spending, but also business operations and investments, with the potential impact rising with each new case and reported death. "Notwithstanding the gloom, the ratings on Asia Pacific sovereigns should ride out the ravages of the virus, although it will add to governments' fiscal burdens," the agency said. "Although geographically close and with porous access to many of the affected countries provide potential for an outbreak, India, Indonesia and Papua New Guinea should be spared," contended the rating agency. Sovereign ratings are forward-looking assessments of a government's creditworthiness, and are meant to incorporate the normal economic, political, commodity, and interest-rate cycles, and indicate policy flexibility. "Although SARS is an exogenous shock that has caught many governments unprepared, Standard & Poor's sees no immediate impact on the sovereign ratings in Asia Pacific, with the expectation that the outbreak and its effects will be short-lived." However, it pointed out that virtually all countries in the region are running deficits, and "further economic slowdown, especially from SARS if not from global uncertainty, could deteriorate already weak fiscal accounts in Taiwan, Malaysia, the Philippines, Thailand, and Vietnam, and to a lesser extent in China, Japan, Mongolia, India, Pakistan and Papua New Guinea." But it added, "for most of these, the effects from SARS, on a base-case assumption, will be short-lived". Consumers are changing their modus operandi and avoiding retail and entertainment outlets, and curtailing discretionary spending. While the falloff is most noticeable in the travel and hospitality sectors, it is also affecting normal business practices, with business travel and spending decisions deferred. "The probability of a worst-case pandemic remains uncertain, although the limited growth in the number of new cases, fatality rates below five percent, and success in breaking the genetic code of SARS indicate that a pandemic will be avoided," it said on a hopeful note. Market analysts and economists have pared down GDP growth forecasts for most Asian economies, based on a scenario of the virus being under control and having a one-quarter influence on economic activities, the report pointed out. The adjustments in each economy are largely proportionate to the gravity of the outbreak, and to the importance of tourism and domestic consumption to the economy. GDP growth rates could be trimmed by 0.6 percent-1.5 percent in Hong Kong, 0.4 percent-2.0 percent in Singapore, 0.3 percent-1.1 percent in Malaysia, 0.1 percent-0.5 percent in Vietnam, 0.2 percent-1.0 percent in Thailand, 0.1 percent-0.5 percent in China, 0.1 percent-1.0 percent in the Philippines, and 0.2 percent-0.5 percent in Taiwan. There could be recession in Hong Kong, even without a worst-case epidemic. SARS is unlikely to affect future productivity. External accounts should also remain robust in most economies, including current account surpluses and creditor positions. In Southeast Asia, Singapore and Malaysia will be the most affected. The former because of its openness and by being on the WHO's list of affected area, and the latter because tourism is a substantial part of the economy. Vietnam, Thailand and the Philippines should fare better provided domestic demand remains robust.
Source: IANS
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