Asia has significantly stronger external and fiscal buffers, which provides the region more space as a whole to deliver on policy easing, however, the starting points differ quite a bit with frontier economies such as Mongolia, Pakistan and Sri Lanka on a weaker footing compared with higher-income economies.
This has been stated by the Moody's Investor Services (Moody's) in its latest report "Coronavirus-Asia Pacific-Policy stimulus will provide companies and banks only partial relief in credit downturn."
The second-round of shocks to dampen the APAC's recovery from coronavirus and stimulus packages provide partial relief only.
Asia's policy response will cushion but not fully offset the economic and financial fallout from the coronavirus outbreak.
Governments across the region have been swift in putting in place policies to support businesses and workers amid the coronavirus outbreak.
These efforts will help mitigate credit-negative pressures on companies, banks and the broader economy, but they will not fully offset the economic and credit damage.
Sharply lower economic activity and fiscal expansion will be credit negative for sovereign credit profiles.
Asia's external and fiscal buffers are more robust, which will provide most countries with greater space to deliver on policy easing.
However, the coronavirus is exposing vulnerabilities and Moody's expect policy space to be constrained for economies with existing fiscal challenges or elevated external vulnerabilities, or both. "Asia has significantly stronger external and fiscal buffers compared with other emerging markets, which provides the region more space as a whole to deliver on policy easing. However, the starting points differ quite a bit with frontier economies such as Mongolia (B3 stable), Pakistan (B3 stable) and Sri Lanka (B2 stable) on a weaker footing compared with higher-income economies such as Singapore, Hong Kong, Korea and Australia," Moody's stated.
The widening spread of the coronavirus, deteriorating global economic outlook, falling commodity prices and volatile financial markets are creating a severe credit shock across many sectors in the Asia-Pacific region.
The economic damage will likely be severe and credit conditions globally will likely deteriorate in 2020.
Governments in Asia have largely focused their policy response on mitigating the immediate economic damage to businesses and households of slowing economic activity.
However, these measures will not completely offset the effects of the economic shock, which has been rapid and pervasive.
The transmission of these effects has three main channels: country-specific shock; shock created by economic spillovers to the rest of the region; and second round shock emanating from the region
Moody's stated that the coronavirus crisis is manifesting itself through three types of shocks in APAC - country-specific, regional and second-round - and that government relief measures, though swift and extensive, will not be enough to offset the effects on the economy. "Widespread containment measures are crippling domestic consumption and production, which is spilling over to other parts of the region in the form of lower demand for commodities, imported goods and services, and supply chain disruptions," said Deborah Tan, a Moody's Assistant Vice President.
Further, the economic spillovers from country-specific shocks are quickly escalating into second-round shocks, as while China has resumed economic activity and production, other economies are still grappling with the spread of the virus.
Slower economic growth will weigh on the resumption of supply chains and trade flows, particularly for tourism and retail.
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