SARS to cut Asean growth to 3.4% in Q2, says ADB

As the negative impact of the dreaded Severe Acute Respiratory Syndrome (SARS) has extended over the second quarter of this year, Southeast Asia’s gross domestic product (GDP) may grow by just 3.4 percent while that of East Asia down to just 5.3 percent during the period.

Based on a newly-released study by the Asian Development Bank (ADB) on the effect of SARS on Asian economies, Hong Kong and Singapore would be hardest hit with GDP growth reduced by an average of 1.45 percentage points – to 0.8 percent and 1.9 percent, respectively.

The People’s Republic of China (PRC) – reportedly the main source of the virus– would chalk a 0.2 percentage point decline in its GDP forecast to 7.3 percent, while Republic of Korea would cut its GDP growth to 3.8 percent.

If it remains a serious issue by the third quarter, Southeast Asia’s growth might decline to 2.5 percent, and East Asia to 4.7 percent. "There would be a 0.5 percentage point to four percentage points decline in individual economies," the ADB report added.

GDP growth in PRC is likely to be reduced by 0.5 percentage point to 7 percent, and in Hong Kong it could fall four percentage points into negative territory under a similar scenario.

The reduction in GDP growth translates into huge losses in income and output, with estimated losses ranging from $12 billion for East Asia and $27.7 billion for Southeast Asia should SARS extend into the third quarter of 2003.

"Unemployment will rise as a result of weakening demand, which will also further reduce inflation and intensify deflationary pressure in some economies, including Hong Kong, China, the PRC, and Taipei," ADB chief economist Ifzal Ali said. "Of particular concern is the fact that SARS will not only induce hardship for many, but also intensify the poverty faced by the most vulnerable groups in society."

The ADB report also pointed to the agriculture sector as "severely affected" by SARS as it would be considerably more difficult to control since rural health systems are inadequately equipped for surveillance, prevention, and treatment of SARS.

Ali said the spread of SARS is reducing import demand from Asian nations, tourism-related services, and has weakened consumer and investor sentiment due to increased uncertainty.

"The only possible positive note is the possibility of a rebound in private spending once SARS is brought under control. Consumers may compensate for their reduction in consumption by increasing their spending.

While domestic consumption could quickly change once confidence resumes, it may take a longer period for foreign travelers and investors to return," the ADB economist added.