Moody's revised forecasts highlight no growth in Japan, slower growth in China

Moody's Investors Service has revised its forecasts for most Asia Pacific economies on coronavirus implications, incorporating ongoing travel restrictions and heightened containment measures as well as the recent oil price shocks.

"Our baseline scenario assumes declining consumption levels and continuing disruptions to production and supply chains in the first half of 2020, followed by a recovery in the second half of the year," said Moody's Senior Vice President Christian de Guzman.

"In the short run, this is playing out as both negative supply and demand shocks. The longer the disruptions last, the greater the risk of a global recession," he added.

Moody's said its forecast for Chinese real GDP growth at less than 5 per cent assumes that normalisation of economic activity will take time. Weaker demand in China's export markets will continue to dampen aggregate demand even as coronavirus infection rates plateau.

"We now assume no growth in Japan and Singapore, and deeper contractions in Hong Kong and Macao in 2020," it said in the research publication.

Risks remain firmly to the downside including from much weaker European and American economies than currently assumed.

Rising infection rates will further impede global sentiment, heightening asset price volatility and tightening financing conditions which can snowball into a deeper economic contraction.

A number of governments have already announced measures to cope with the impact of coronavirus. Moody's expects there will be more fiscal stimulus as the extent of economic fallout becomes clearer.

However, some governments -- mainly frontier markets -- may be constrained by their high indebtedness and limited access to funding.

Moody's said tighter funding conditions and exchange rate depreciation can stress sovereigns with high foreign currency exposure, heavy reliance on external market funding or inadequate foreign currency reserve coverage.

Among frontier economies, only Sri Lanka faces a maturing international bond in 2020. Also, lower oil prices will ease pressures on trade and current account deficits for oil-importing countries, said Moody's.

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