COVID-19's wider reach deepens shadow over global economies and credit: S&P

March 4, 2020

SINGAPORE - The recent surge of coronavirus cases outside of China is a rising risk to global economies and credit markets, S&P Global Ratings says in an update on the impact of COVID-19.

"With the COVID-19 epidemic having spread to more than 70 countries, the implications for credit markets have taken on a more global dimension," said S&P Global Ratings' Head of Global Research, Alexandra Dimitrijevic.

"Loss of investor confidence is driving up funding costs for more leveraged borrowers and could lead to capital outflows for emerging markets that have high external imbalances."

S&P Global Ratings' economics team has further lowered its global growth forecasts.

With COVID-19 now present in more than 70 countries, S&P says the global macro impact has doubled since its last update. "We estimate it will now take 0.5% off our 3.3% GDP growth baseline (from December 2019)," it says.

"We also estimate that China's GDP growth could slow to 4.8% in 2020, compared with our pre-outbreak forecast of 5.7%. We have cut our forecast for Euroarea growth in half to 0.5%, with Italy taking a harder-than-average hit.

"We expect the more-insulated U.S. economy to expand by 1.6% this year, 0.3% less than our pre-epidemic forecast."

S&P says stabilisation of the health situation and the macro-economy is like to happen during the second quarter, given that the rate of transmission of COVID-19 outside of China is increasing, and the number of affected populations to rise.

"In our view, a key variable is the duration of the shock." (ATI).