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Coronavirus To Hurt Spending In China With Spillover To Global Companies: Moody's

By sector, Coronavirus will likely have the largest negative impact on goods and services sectors within and outside of China that rely on Chinese consumers and intermediary products.

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The immediate and most significant economic impact of Coronavirus is in China but will reverberate worldwide, given the importance of China in global growth as well as in multinational company revenues, Moody's Investors Service said on Thursday.

By sector, Coronavirus will likely have the largest negative impact on goods and services sectors within and outside of China that rely on Chinese consumers and intermediary products. "The primary impact is on human health. However, the risk of contagion is affecting economic activity and financial markets," said Moody's in its weekly credit outlook.

In its baseline, Moody's expects the outbreak to have a temporary impact on China's economy and for annual GDP growth in China to remain in line with its forecast of 5.8 per cent in 2020.

However, the composition of growth will likely shift because of a dampening of consumption in the first quarter, potentially offset by stimulus measures. "Nonetheless, there is still a high level of uncertainty around the length and intensity of the outbreak, and we will review our forecasts as conditions evolve."

Following the outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003, growth and financial markets in China weakened significantly, but for only a short period. An offsetting rebound limited the overall negative effects on annual growth.

But the SARS episode is not a perfect comparison, said Moody's, since the composition of the Chinese economy has changed appreciably since 2003.

Over the past 16 years, the contribution of consumption to China's economic growth has risen significantly. Therefore, the impact of the Coronavirus through the consumption channel may well be higher now.

"If there is indeed a sharp slowdown in consumption, we would expect macroeconomic policy to be eased in response. 

This could lead to a shift in the drivers of growth in 2020," said Moody's.

The virus will likely have an effect on the revenue of China's discretionary travel, transportation, lodging, restaurants, retail and services sectors.

However, the impact on offline retail sales could be smaller compared with the weakness following the SARS outbreak because of the rapid shift to online sales in China over the past decade.

Non-discretionary consumer demand related to the healthcare sector and medical equipment will likely surge.

Moody's said the outbreak will also potentially have a disruptive effect on global supply chains. Global companies operating in the affected area may face output losses as a result of the evacuation of workers.

Companies operating outside China that have a strong dependence on the upstream output produced from the affected area will also be under pressure because of possible supply chain disruptions resulting from temporary production delays.

(ANI)


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