SARS will curb growth rates in Asia, S&P says

SARS will curb growth rates in Asia, S&P says

Agence France-Presse, Hong Kong

International rating agency Standard and Poor's said on Tuesday that the outbreak of Severe Acute Respiratory Syndrome (SARS) would lower growth rates in much of Asia this year, with Hong Kong taking the brunt of the damage.

The agency said the virus has affected not just tourist arrivals and consumer spending, but also business operations and investments with potential impact rising with each new case and death.

"Notwithstanding the gloom, the ratings on Asia-Pacific sovereigns should ride out the ravages of the virus, although it will add to governments' fiscal burdens," Standard and Poor's said in a statement.

It said although SARS does not appear as deadly as other diseases, it is affecting the way people interact, with many people choosing to avoid public places. In turn, this is harming confidence and consumption.

SARS has claimed some 143 lives worldwide and is believed to have infected at least 3,400. Hong Kong and China are the worst hit.

"Nevertheless, if the virus proves more virulent than initial estimates, economic dislocation and sustained budgetary deterioration could put pressure on sovereigns whose fiscal position is stretched for their rating level, especially those with negative outlooks, including Hong Kong," it said.

"In addition, the duration and eventual eradication, or just containment, of the outbreak will also affect economic prospects and budgetary outcomes," the agency said.

Ping Chew, director in Standard and Poor's sovereign ratings group, said "the adjustments in each economy are largely proportionate to the gravity of the outbreak, and to the importance of tourism and domestic consumption to the economy."

Under the agency's current base-case scenario that the virus is eventually controlled, the damage to real economy, public finance, and public health, is likely to be short-lived, and underlying credit fundamentals should remain unchanged.

"Sovereigns with stronger fiscal flexibility will cope with the impact are likely to endure the temporary set backs, and provided those with unsustainable deficits take quick remedial actions post-SARS to achieve fiscal consolidation rating should remains as the are," Standard and Poor's said.

"Nevertheless, if the base-case scenario proves too benign, the threat to ratings from fiscal pressures will increases in line with any outbreak," said Chew.

"Several sovereigns already have negative outlooks assigned to their rating, and all have fiscal pressures to blame," he said.