Japan warns about risks to economy as outbreak toll mounts

Chinese tourists wearing protective face masks wait to board a Tokyo train. Japanese exporters are worried the virus outbreak will hit earnings. (AP)
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Updated 29 January 2020

Japan warns about risks to economy as outbreak toll mounts

  • China is Japan’s second-largest export destination

TOKYO: Japanese Economy Minister Yasutoshi Nishimura on Tuesday warned that corporate profits and factory production might take a hit from the coronavirus outbreak in China that has rattled global markets and chilled confidence.

Asian stocks extended a global selloff as the outbreak in China, which has killed 106 people and spread to many countries, fueled concern over the damage to the world’s second-largest economy — an engine of global growth.

“There are concerns over the impact to the global economy from the spread of infection in China, transportation disruptions, cancelation of group tours from China and an extention in the lunar holiday,” Nishimura said.

“If the situation takes longer to subside, we’re worried it could hurt Japanese exports, output and corporate profits via the impact on Chinese consumption and production.”

China is Japan’s second-largest export destination and a huge market for its retailers. The Chinese make up 30 percent of all tourists visiting Japan and spent nearly 40 percent of the total sum foreign tourists used last year, an industry survey showed.

The outbreak could hit Japanese retailers and hotels, which count on a boost to sales from an inflow of Chinese tourists visiting during the lunar holiday.

Automaker Honda Motor, which has three plants in Wuhan, the epicenter of the outbreak, plans to evacuate some staff. Economists at SMBC Nikko Securities estimate that if a ban China has imposed on overseas group tours lasts another six months, it could hurt Japan’s economic growth by 0.05 percent.

Some expect the potential damage could be much worse.

Hideo Kumano, chief economist at Dai-ichi Life Research Institute, said the decline in tourists from China could hurt Japan’s GDP growth by up to 0.2 percent.

“The biggest worry is the risk the negative impact from the outbreak persists and hits (the economy) during the Tokyo Olympic Games,” when a huge number of Chinese tourists are expected to visit Japan, he said.


S&P cuts Oman rating deeper into junk, trims Bahrain’s outlook

Updated 29 March 2020

S&P cuts Oman rating deeper into junk, trims Bahrain’s outlook

  • External challenges, indebtedness and dependence on declining oil revenue cited as reasons for concern

DUBAI: Rating agency S&P has lowered crude producer Oman’s sovereign ratings deeper into junk territory, citing external challenges, and changed the outlook for Bahrain’s ratings to stable from positive due to the country’s dependence on
oil revenue.

The changes came after S&P recently cut its forecast the Brent crude oil benchmark to an average of $30 a barrel in 2020, $50 per barrel in 2021, and $55 a barrel from 2022.

S&P cut Oman’s long-term foreign and local currency sovereign ratings to “BB-” from “BB,” citing higher external risks and indebtedness.

“The sharp drop in oil prices in 2020 will intensify Oman’s fiscal and external pressures, leading to a faster deterioration in the government’s balance sheet, which has considerably weaker buffers than during the 2014-2015 oil price shock,” it said.

The outlook for Oman’s ratings is negative, the rating agency said, reflecting the risk that the government’s medium-term fiscal consolidation plans could be insufficient to stem the rising state debt. It expects the fiscal deficit will average almost 8 percent of GDP in 2021-2023.

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S&P has cut its forecast for the Brent crude oil benchmark to an average of $30 a barrel in 2020.

The large funding needs will be predominantly met through the issuance of foreign-currency debt, with the remainder financed by asset draw downs and domestic debt, it said.

S&P expects Oman’s external debt — adjusted for liquid external assets — will rise to 67 percent of current account receipts in 2023, from about 20 percent in 2018.

The rating agency said that the share of foreign-currency-denominated debt, largely held by non-residents, was high — at above 80 percent of total debt.

“We expect funding costs will rise despite monetary easing in the US, since portfolio flows to emerging markets could dry up and Oman’s macro-fundamentals are under pressure from external developments,” it said.

On Bahrain, the rating agency said its revenue remained dependent on oil, and hence sensitive to energy price shocks, despite efforts to increase non-energy receipts. “Recent revisions to our 2020 price projections for oil imply more elevated current account deficits for Bahrain, raising external vulnerabilities,” it said.

However, the provision of zero-interest loans from neighboring sovereigns — Saudi Arabia, Kuwait and UAE — and the expectation of further support, if needed, provide the government with an important financing buffer.