S&P expects negative severe shock from Covid-19 to be temporary


  • Economy
  • Monday, 17 Feb 2020

People wearing face masks walk inside a subway station, as the country is hit by an outbreak of the novel coronavirus, in Shanghai, China February 17, 2020. REUTERS/Aly Song

KUALA LUMPUR: S&P Global Ratings expects the negative shock from the Covid-19 coronavirus – where the death toll in China has reached 1,770 -- to be severe but temporary and to be offset by a recovery starting in the last quarter of the year.

The rating agency said on Monday due to the continuing spread of the Covid-19 “uncertainty remains high regarding how long it will last”.

S&P said modeling by academics with expertise in epidemiology indicates a likely range for the peak between late February and June.

“When assessing the possible impact on sovereign ratings, we're working with the assumption that the spread of the disease will peak sometime in March and things will start to improve after. This means that we expect the negative shock, though severe, to be temporary and to be offset by a recovery starting in the last quarter of the year.

“The main impact is being felt throughout Asia-Pacific, where we have lowered our economic forecasts for 2020 across most sovereigns that we rate. In this context, we review in an article our expectations for sovereign ratings and outlooks globally, ” it said.

Reuters reported on Monday that in Hubei, the epicentre of the outbreak, health officials reported 1,933 new cases and 100 new deaths on Feb 16, the lowest daily death count since Feb 11. The number of new cases rose nearly 5% from the previous day, but the number of deaths fell from 139.

Nearly 90% of the new cases were in the provincial capital of Wuhan, a city of 11 million people where the virus is believed to have originated at a market illegally trading wildlife late last year.

Across mainland China, officials said the total number of cases rose by 2,048 to 70,548, with 1,770 deaths, according to the wire report.

S&P said the outbreak has immediate negative implications for China's economic growth and fiscal performance.

Consumer spending is taking a hit as people avoid crowded places such as restaurants and shopping malls. This is exacerbated by government actions to restrict people movement in a bid to prevent further spread of the disease.

“These restrictions are not only dampening consumption further, but production activities are also affected by workers unable to go to their workplaces.

“Despite recent efforts by central government agencies to get businesses to resume activities, many local governments have been slow to grant approvals for businesses to do so owing to fears of new infection cases, ” the rating agency said.

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