Fitch flags Asia’s service sector as most vulnerable if outbreak escalates

Service sector activity in Asia, especially tourism-related fields, would be the most vulnerable should the Wuhan virus outbreak escalate sharply. This could leave economies such as Singapore, Thailand and Hong Kong exposed, Fitch Ratings said in a report yesterday.

But the downside risks to these Asian countries would be mitigated by large financial buffers and easing of other macroeconomic risks, Fitch noted.

The Wuhan coronavirus, now known as 2019-nCoV, can be transmitted from person to person. It has killed at least 25 people and more than 800 have been confirmed.

Singapore confirmed its first case, a 66-year-old Chinese male from Wuhan, on Thursday.

Fitch said the global airlines, gaming, lodging and leisure sectors are vulnerable to pandemics that influence consumer behaviour.

“Large-scale, unpredictable events can cause immediate and severe disruptions in global travel demand that affect revenue but are typically transitory,” it noted, adding that the financial implications ultimately hinge on the severity and duration of the situation.

The World Health Organisation announced on Thursday that while the Wuhan virus is an emergency in China – at least 10 cities in Hubei province have suspended some of their public transportation, with provincial capital Wuhan, the epicentre of the outbreak, on lockdown from Thursday – it is not yet a global health emergency.

Fitch said that if the virus outbreak spreads and is prolonged, consumer sentiment would be dampened and credit ratings could be significantly affected.

A DBS Group Research report released yesterday highlighted that the severe acute respiratory syndrome (Sars) outbreak in 2003, which killed more than 770 people, caused a sharp decline in travel, tourism and commerce in mainland China, Hong Kong, Singapore and Taiwan.

The loss of gross domestic product in 2003 as a result of Sars was about 0.5 per cent for Singapore, and around 2.5 per cent for Hong Kong.

But DBS noted that “economies with advanced infrastructure and a well-rehearsed policy response system can absorb the shock, contain the damage, and back quickly”.

It added that while the virus developments will have an impact on tourism and sales data for January in the region, it is too early to guessing major downsides to economic and financial indicators.

Leave A Reply

Your email address will not be published.