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S&P: ASIA-PACIFIC RECESSION GUARANTEED
March 18, 2020

Asia-Pacific economic growth in 2020 will more than halve to less than 3% as the global economy enters a recession according to S&P Global Ratings.

In an article titled "Asia-Pacific Recession Guaranteed," the American credit rater attributed the recession mainly to the slowdown in China's growth.

 

"An enormous first-quarter shock in China, shutdowns across the US and Europe, and local virus transmission guarantee a deep recession across Asia-Pacific," said Shaun Roache, the chief Asia-Pacific economist at S&P Global Ratings.

 

S&P noted that recession means at least two-quarters of well below-trend growth sufficient to trigger rising unemployment.

 

"Our estimate of permanent income losses is likely to at least double to more than US$400 billion," said Roache.

 

China is gradually recovering from an enormous economic blow early in 2020. February data confirm a huge shock to activity in the first quarter. Investment accounts for about 45% of China's economy — and fixed asset investment in January and February combined plunged by almost 25% compared with a year ago.

 

Over the same period, industrial production and retail sales also fell by 14% and 21%.

 

"These are unprecedented numbers. This not only confirms a hard hit to China's growth but indicates that the authorities are not smoothing the data," Roache added.

 

External shocks from the fallout of global viral spread add a new dimension, S&P said, adding that people flows from the US and Europe will be decimated for at least two quarters, heaping more pressure on the tourism industry.

 

The global policy response, including the Federal Reserve's policy-rate cut to zero and the Bank of Japan's scaled-up asset purchases, will help cushion but not quickly reverse these shocks. Local measures aiming to support vulnerable sectors and workers may help but their effect will wane the longer the crisis lasts.

 

S&P said the timing of recovery depends, most of all, on progress in containing viral spread. Even if major progress is made during the second quarter, after a sustained period of stressed cash flow many firms will be in no position to resume investing quickly.

 

"The scars that may be left on balance sheets and in labour markets threaten a more drawn out U-shape recovery in Asia-Pacific," Roache added.

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