The Asia-Pacific region could face a total and permanent income loss of $620 billion owing to the impact of the Covid-19 pandemic, according to the latest S&P Global Ratings update released on Monday.
The global ratings agency further slashed its growth estimate for the region to 2.7% in 2020, from an earlier downgrade to 3% just last week on Wednesday.
The agency’s previous report on the economic impact of the virus outbreak had forecast a $400 billion loss in income for the Asia-Pacific. The latest report, coming barely a week later, increased this amount by $220 billion.
These losses will be distributed across sectors among governments, banks, corporates and households, the report said.
The report acknowledged a heightened degree of uncertainty arising from the spread of the virus and mentioned that some governments expected the pandemic to peak as late as June or August.
The earlier report had downgraded its forecast of India’s growth in 2020 to 5.2% while it expected a sharper fall to 2.9% for China this year.
In another update on Friday, Moody’s Investor Service said the loss of the service sector would be unrecoverable for the most part while the damage to the manufacturing sector from production shutdowns, even if temporary, will not be fully recovered.
For the financial sector Moody’s said, “The sudden and sharp increase in risk aversion, fed by fear that economic activity will be severely curtailed for months, has the potential to propel a self-fulfilling vicious cycle of deteriorating confidence, weak earnings expectations, lower business investment, retrenchment in employment and a further pullback in consumer spending.”
The report advised governments that swift, strong, effective and targeted policy action would be crucial in preventing unemployment from rising precipitously, thereby preventing a deeper and longer downturn.
“A key difference in the policy response during the global financial crisis and now is that policymakers today are deploying emergency relief packages preemptively in an effort to limit the economic damage,” the Moody’s report said.
Since the financial crisis, processes and tools to deploy large scale stimulus quickly have been put in place. Moreover, the continuous assessment and the availability of data, should in theory help calibrate the policy response to address vulnerabilities, it said.