Should the Wuhan viral outbreak escalate sharply, service sector activity, particularly in fields associated with tourism, would be most vulnerable, which could leave economies such as Vietnam and neighboring countries like Thailand and Singapore exposed, Fitch Ratings has said in a note.
| China accounts for one third of foreign guests to Vietnam. |
Upward ratings momentum for Asia-Pacific sovereigns with significant tourism receipts, such as Thailand and Vietnam, where Fitch has a Positive Outlook on both, could also be affected depending on the severity of the outbreak.
Downside risks for Asian sovereigns would be mitigated by large financial buffers and easing of other macroeconomic risks. The signing of the US-China Phase One trade deal and a pause in tariffs has reduced policy uncertainty, and signs of improved activity among manufacturers and exporters in Asia are increasing.
Nevertheless, for sovereigns where medium-term fiscal consolidation is a priority, such as Malaysia and Sri Lanka, there could be less room to relax fiscal policy in response to any downturn. The willingness of some authorities to use fiscal measures may be constrained by their adherence to self-imposed fiscal rules, such as in Indonesia and Vietnam, although they may have room for monetary easing in such a scenario, the rating agency noted.
The US-based agency assessed that the scale of the current Wuhan coronavirus outbreak would have to increase substantially to have a significant impact on credit ratings. However, under such a scenario, global corporates exposed to travel and tourism are expected to be most at risk of being affected.
The new coronavirus was first identified in Wuhan China, in December 2019. It has not reached pandemic status but has sickened thousands of individuals, some fatally, in China and internationally, according to the World Health Organization (WHO).
The global airlines, gaming, lodging and leisure sectors are vulnerable to pandemics that influence consumer behavior.
If the Wuhan coronavirus outbreak is short lived, the shock should not result in any near-term erosion of credit metrics or negative rating actions for Fitch-rated corporates or sovereigns. If, however, the outbreak spreads and is prolonged, dampening consumer sentiment, effects could become more widespread.
Vietnam received 18 million foreign visitors last year, a record high number, giving tourism increasing importance amid lower contributions from the oil and gas sector. China accounts for one third of foreign guests to Vietnam.
Vietnam has cancelled all flights to and from the central Chinese city of Wuhan, where the new deadly pneumonia virus broke out.
Vietnam has confirmed two Chinese nationals have tested positive with the virus. Dozens of Vietnamese are under quarantine for further check, but no Vietnamese has been tested positive with the virus as of January 26.
