SINGAPORE: Economic fallout in Asia from the Severe Acute Respiratory Syndrome (SARS) crisis mounted yesterday as the World Bank cut its regional growth forecast, Hong Kong received a credit rating blow, and investors dumped shares in Asian retailers and exporters to China.
Although investors have already cut exposure to sectors most exposed to the virus, such as retailing and regional travel, selling picked up after an acceleration in cases in China and growing fears that SARS may stall the region’s economic engine.
A report that top Japanese carmaker Toyota Motor Corp plans to withdraw most of its Japanese staff and their families from Beijing due to the virus deepened the gloom.
“Now SARS seems a little bit more protracted and it’s affecting China. People are revising down China’s GDP (gross domestic product) numbers and that’s an important growth engine for us,” said Roy Phua, fund manager at DBS Asset Management, which manages S$5.6bil of funds.
Hong Kong shares slid to their lowest levels in four and a half years, Taiwan stocks fell 4% and Singapore shares fell 2%, led down by Singapore Airlines.
The Paris-based Organisation for Economic Cooperation and Development (OECD), citing past public health scares, said the economic impact of SARS could be significant.
Asian government attempts to shore up confidence – such as Hong Kong's US$1.5bil relief package announced on Wednesday – seem to be doing little to turn the tide of anxiety over SARS.
For instance, casual clothing retailer Giordano, which has 1,256 stores worldwide, including 73 in Hong Kong and 532 in mainland China, said its Hong Kong sales had fallen 30% since the outbreak of the deadly illness.
“I believe our results will deteriorate but we cannot assess the magnitude now,” said chairman Peter Lau, referring to the Hong Kong–based group’s 2003 earnings. Giordano shares fell a further 3% yesterday after losing almost a third of their value in the past month.
Worries about a slowdown in China’s economy, which is replacing the United States as Asia’s growth driver, also sparked selling of shares in South Korea’s POSCO Co, the world’s second biggest steel maker. The stock fell 5% yesterday, rattled by worries that the spread of SARS may reduce Chinese orders.
Citigroup and J.P. Morgan Chase expect China’s economy to contract in the second quarter due to the impact of SARS, putting an end to a stellar run that has seen the economy average more than 7% growth in recent years.
The World Bank, meanwhile, cut 0.5 percentage point from its East Asian growth forecast, in part due to the SARS blow to tourism and other face-to-face sectors such as business travel, transport and retail. It now sees only 5% growth this year.
But the impact would fall unevenly across the region, it said.
“A 10% fall in tourist arrivals would have an impact effect of less than 0.2 percentage point of GDP in China but one of 0.5 percentage point in a more tourism-dependent economy like Hong Kong,” the World Bank said.
Although China is the epicentre of the SARS outbreak, its robust economy and domestic demand should act as a partial buffer for export-driven Asian nations, the World Bank said.
“SARS may have a severe effect over the short term, but it is unlikely to stop the discernible underlying trend towards a gradual strengthening of East Asian domestic demand and activity,” it added. – Reuters
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