The World Health Organization reported, COVID-19 cases are soaring in several major countries, with "worrying increases" in Latin America, especially Brazil - Photo by BBC

JAKARTA (TheInsiderStories) – The coronavirus outbreak poses increasing risks to the growth outlook for a number of countries in particular in Asia Pacific, but that the credit profiles of the most-exposed sovereigns remain resilient, says Moody’s Investors Service says in a new report.

As downside risks to China’ (A1 stable) growth forecasts increase, there will be reverberations for economies globally, given its role as a very significant source of final demand.

“The most immediate economic implications from the coronavirus outbreak will manifest through a fall in tourist arrivals from, and weaker exports of goods to China and other economies integrated into the Chinese supply chain,” says Anushka Shah, a Moody’s VP and Senior Analyst on Tuesday (2/11).

Moody’s current baseline assumption is for the economic impact of the outbreak to continue for a number of weeks, after which normal activity will gradually resume. Under such a scenario, the agency expects GDP growth to fall significantly in Hong Kong (Aa3 stable) and Macao (Aa3 stable) due to their particularly strong trade ties with, and tourism flows from China.

Other economies exposed to a fall in Chinese demand for goods include Taiwan (Aa3 stable), Singapore (Aaa stable), Malaysia (A3 stable) and Korea (Aa2 stable) due to their supply chain linkages. Globally, commodity producers – mainly in Africa and the Gulf, as well as a few countries in APAC – also have export bases that are exposed to weaker demand from China.

Growth will also soften in other tourism-dependent economies such as the Maldives (B2 negative), Cambodia (B2 stable), Thailand (Baa1 positive) and, to a lesser extent, Vietnam (Ba3 negative).

“However, the buffers available to most sovereigns that are particularly exposed through the trade and tourism channels are also relatively strong, meaning credit-negative implications will be limited,” adds Shah.

The impact, she continued, will be muted for countries in Europe and the Americas because of their more modest trade and tourism links. In a scenario where the outbreak is more prolonged, disruptions to supply chains and a possible extended fall in commodity prices could cause significant second-round economic effects.

In particular, a prolonged fall in prices would hurt commodity-producing sovereigns with already weak credit profiles, such as Zambia (Caa2 negative), Republic of the Congo (Caa2 stable), and Mongolia (B3 stable).

A downside scenario of a more prolonged coronavirus outbreak could also disrupt supply chains globally, in particular in Asia. Some sovereigns could also see delays in Chinese-funded projects, and market financing conditions could tighten.

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