A report from S&P has forecast growth in the APAC will slow to 4 per cent in 2020, the lowest since the global financial crisis, as a result of the virus.
The multinational believes a U-shaped recovery will start later in the year, but by then, economic damage in the region will reach US$211 billion ($319 billion).
Shaun Roache, Asia-Pacific chief economist at S&P Global Ratings has said the loss will be distributed across the household, non-financial corporate, financial and sovereign sectors, with the burden to be on governments to soften the blow with public resources.
“Some economic activities will be lost forever, especially for the service sector,” Mr Roache said.
The hardest hit economies have been Hong Kong, Singapore and Thailand, where people flows and supply chain channels are large.
Australia is also exposed, with S&P forecasting its growth for the year to touch 1.2 per cent, more than half of what it was in 2019 at 2.7 per cent.
“Australia’s most disrupted sectors employ a large share of workers which will weaken both the labour market and consumer confidence,” Mr Roache said.
Services in Australia account for a large slice of employment, the reported noted, with accommodation and catering being sensitive to tourism and discretionary consumer spending.
Along with other economic experts, AMP Capital senior economist Diana Mousina signalled she expects Australian GPD growth to be negative in the March quarter, dragged by the bushfires and the virus.
Last week’s rate cut to 0.5 per cent will assist households with mortgages and businesses with debt, she wrote, but more stimulus is needed. AMP Capital, as well as UBS have called the RBA will enact another cut in April.
Ms Mousina anticipates fiscal stimulus from government, starting with support for businesses hit by COVID-19, followed by a broader boost to help investment and consumer spending.
“However if government stimulus does not prove to be enough (or come early enough) to support the economy then the RBA is expected to start an asset purchase program to further reduce the cost of borrowing,” she said.
As at Friday morning, there were 59 confirmed cases of COVID-19 in Australia, with two deaths.
APRA monitoring hits to financial system
The prudential regulator has indicated it is assessing how the coronavirus outbreak will affect the operation of financial institutions, with chairman Wayne Byres saying the system is positioned to handle volatility, but it will need considerable vigilance.
Speaking to the standing committee of economics last week, Mr Byres said the regulator has also been examining broader economic impacts from the virus.
The financial system has already copped hits from the extreme weather events over the summer. Current estimates for total insured losses as a result of the bushfires, storms, hail and floods across Australia are projected to be in the order of $5 billion. The Australian cyclone system is still yet to end.
APRA has reported the financial position of the insurance sector means it is well placed to cover the claims, however, Mr Byres stated: “The summer’s events will undoubtedly have an impact on the price and in some cases, availability of insurance in the future.”
