***************************View from
Malaysia*************************************
July 23, 2003 Wednesday
SARS: Tsunami or passing storm?, MALAYSIAN BUSINESS
The Impact of SARS While the number of SARS cases looks negligible
compared to the population of the 32 countries that have reported
infections, its cumulative impact on business and consumer sentiments
is worrying.
Undoubtedly, the SARS fallout will have negative direct and indirect
implications to our economy. Either way, most analysts believe that it
will erode business confidence and consumer sentiment, which will
eventually limit Gross Domestic Product growth. Another implication of
SARS could be a slide in corporate earnings, which may weigh on the
current fragile market sentiment.
Direct Hit The services sector has suffered the most from SARS. Retail
outlets, restaurants, hotels, travel agencies and entertainment
establishments are the front-line businesses that have borne the brunt
of the fallout due to the drop in tourist and business travels. While
it is hard to quantify the actual impact of SARS, the repercussions
are nonetheless significant.
Businesses have been reeling from the impact. According to news
reports:
* KFC Holdings Bhd said that the group's food outlets have seen a drop
of 20%-30% in turnover in the months of March and April. It said this
would almost certainly be reflected in its earnings.
* The Malaysian Retailers Association (MRA) has estimated that
turnover for member companies has fallen by between 10% and 30% since
April.
* Travel agencies, which survive on the cash they receive from
bookings, are earning 25% to 45% less in monthly revenues. PST Travel
and KHT Travel, both in the British American Tobacco (M) Bhd stable,
said that they have seen many cancellations and postponements of tour
packages for travel in the months of April, May and June.
* Shangri-La Kuala Lumpur, one of Malaysia's top five-star hotels,
said that its occupancy rate has declined by 60%-70% in the 'SARS
period'.
Overall, hotel occupancy rates have dropped to 30%.
Indirect Blow The banking industry could be a sector that will feel
the first indirect impact of SARS as it has a very high correlation
with the economy. It is believed that the SARS outbreak could affect
the earnings of banks via two major elements: loans growth and loans
loss provision. The recently announced result (1Q03) of OCBC Singapore
where the bank's net profit declined 6% (QoQ) and 26% (YoY) could be a
reflection of the potential damage of SARS, although the impact on
Malaysian banks is believed to be much softer as Malaysia has not been
designated a SARS-affected country.
Who Could The Winners Be?
Amidst the doom and gloom, there are obviously sectors and companies
that will benefit from the SARS impact. One of the industries that
will directly benefit is the pharmaceutical business, where some
companies have reported increased sales: * Kotra Industries Bhd said
the consumption of vitamins and generic drugs has increased, and thus
the business for these segments has improved over the past few months.
* Demand for disinfectants, masks and thermometers has risen and
supply cannot meet the heightened demand, said Apex Pharmacy.
* Some analysts are also recommending direct-selling companies like
Amway and Cosway as companies that could gain from the SARS epidemic,
as the outbreak is likely to make people more health conscious. This
awareness is boosting the sales of healthcare products.
* Another sector that could benefit in the long term is the insurance
industry. Increased health awareness will certainly influence people
to place greater focus on life and healthcare insurance.
The Cost of SARS The bill is somewhat hard to be estimated. First of
all, no health organisation knows when the outbreak will be wiped out.
Thus, not surprisingly, most researchers across the world are at their
wits end as how to quantify the cost of SARS. Some experts have
predicted huge economic losses resulting from SARS - the World Bank,
for example, forecasts a total loss of US$15 billion (RM57 billion) in
Asia alone. The Government of Singapore now said its 2003 GDP growth
would be between 0.5% and 2.5%, down substantially from the 2%-5%
range it had previously predicted. On the domestic front, MIER
(Malaysian Institute of Economic Research) has lowered our 2003 GDP
forecast from 4.5% to 3.7%.
While there may be other economic costs associated with SARS, the
greatest part of these losses will be the result of irrational panic,
which is currently leading to a decrease in tourism and consumption,
rather than the disease itself. Given that business and consumer
confidence is the best prescription to check the slide, the
Government's new strategic economic package can help reduce the
irrational fears and impact of SARS.
The SARS scare is making foreign investors more nervous about visiting
or investing in China, which is currently drawing out foreign direct
investments (FDI) from other countries in Asia. Some economists
believe that the postponement or cancellation of investments in China
may well be good news for emerging countries (those less affected by
SARS) in South- East Asia. Motorola is an example. Before the outbreak
of SARS, the group was considering to invest 8010014f its capital in
China. However, this has since been scaled down to 50% and the company
is believed to be directing the remaining portion back to other
emerging markets like Malaysia.
The Pause of Globalisation?
A research report published by SIIA (Singapore Institute of
International Affairs) said the possibility of SARS becoming a truly
global threat and pulling the plug on globalisation could not be
discounted.
'The outbreak of SARS has brought the question of how governments
should react domestically and cooperatively with other neighbouring
countries and the international community to limit the damage of viral
globalisation.
The barrage of criticisms that China has received for failure to act
on SARS more quickly, openly and truthfully has shown how the lack of
international consciousness can bring untold damage to the normal
rhythm of societies and economies. Impact of SARS on China's key
trading partners such as Hong Kong, Singapore and Taiwan; the backlash
against the Chinese community in SARS-infected Toronto, the Malaysian
government's ban on Chinese tourists, clearly illustrate this point.'
The Beginning of Price Wars?
Andy Xie, an economist from Morgan Stanley, on the other hand,
believed that SARS would have a greater impact on corporate earnings
rather than on GDP. The disruption in sales could expose fixed-cost
businesses to insolvency risks in the coming months, and rising
inventories in distribution channels could trigger price wars.
'Regardless of the ability to control SARS, and the timeframe
involved, most of the businesses will still see real and considerable
costs to corporate earnings that markets will probably have to contend
with in the coming months. Further, we believe that inventories that
have piled up in distribution channels will likely lead to price wars
as demand recovers - across the region and in both goods and services.
While the impact of SARS on GDP could be mitigated by such price wars
(to keep volumes up), corporate profits are likely to be reduced
significantly, in our opinion.
****************************View from
Singapore*****************************
DATELINE: SINGAPORE, Aug 11
BODY:
Singapore's economy shrank by record 11.4 percent from the previous
quarter in the three months to June as the Iraq war and SARS outbreak
dealt the island-state's tourism and hospitality sectors a severe
blow, the government said Monday.
The Ministry of Trade and Industry (MTI) said Singapore's economy
contracted by 4.2 percent on an annual basis in the second quarter but
added that the worst is likely over now that Severe Acute Respiratory
Syndrome has been contained.
For the year, the MTI said it was lowering growth targets from 0.5-2.5
percent to between zero and one percent due to the impact of SARS and
the Iraq war on the trade-dependent economy.
The lower growth projections and June quarter performance had been
announced by Prime Minister Goh Chok Tong on Friday in his annual
National Day speech, when he also flagged an improvement in the second
half. Goh had said in his speech signs of a recovery were visible as
hotels were filling up and exports were expected to grow further.
Economists also predicted on Monday the worst was over for the
Singapore economy.
"I think most people would agree with his (Goh's) assessment that the
second quarter was likely the bottom," David Cohen, an economist at
MMS International, told AFP.
"So I think the basic scenario that he laid out is reasonable."
The Iraq war and SARS in particular dealt a severe blow to the
economy, with the lucrative hotels and restaurants sectors declining
33 percent from a year ago in the June quarter, the MTI said.
On a quarterly basis, it was down 75.4 percent which is possibly the
worst performance ever from the sector.
MTI deputy secretary for industry Ng Wai Choong said it was "a dismal
second quarter" as he highlighted the economic impacts of SARS, which
killed 33 people in Singapore between March and May.
But Ng also said the remaining six months of the year should improve
with the health epidemic contained and improved global demand for
electronics products.
"Certainly, we expect a pick up in global electronics demand and
lastly with SARS behind us, the tourism sector and the transport
sector should get a lift," he told a news conference.
"So overall, the outlook for the second half is positive. We expect
the economy to improve quite significantly in the second half."
Electronics is a major export for the local economy, accounting for
the bulk of key non-oil domestic exports.
The shrinkage in the three months to June meant the economy grew by
1.3 percent growth in the first half, with second half growth forecast
for between 1.3 and 3.3 percent.
The second half and yearly forecasts assumed no further unfavourable
shocks to Singapore's economy, the MTI said.
Almost all areas of the economy were struggled in the second quarter,
with the key manufacturing sector contracting by 7.2 percent and the
construction sector down by nine percent.
The transport and communications sector was another direct casualty of
SARS, contracting by 10 percent in the second quarter year-on-year
compared with one percent growth in the first three months of the
year.
The financial services sector was the only bright spot in the economy,
turning around five consecutive quarters of contraction to grow by 4.3
percent in the second quarter.
The MTI confirmed the unemployment rate remained at 4.5 percent in
June. Although total employment fell by 24,800 people, the figure
remained stagnant because many people gave up looking for work, the
MTI said.
Despite the better growth projections for the second-half, the
government said unemployment was only expected to improve in early
2004.
The Manpower Ministry's divisional director for manpower planning and
policy, Elizabeth Quah, said the unemployment figure would "pick up,
perhaps, only next year".
The unemployment rate would rise to 5.5 percent by year end, she said,
reiterating previous government projections.
*****************************View from Beijing,
China************************
HEADLINE: Beijing's economy maintains rapid growth despite SARS: Mayor
DATELINE: BEIJING, July 23
BODY:
"Statistics show that the Severe Acute Respiratory Syndrome (SARS)
crisis did not and will not affect Beijing's basic economic trend of
rapid growth," said Beijing Mayor Wang Qishan on Wednesday.
He said in the first half of this year, Beijing suffered about 3.24
billion yuan (some 390 million US dollars) in economic losses due to
the impact of the SARS crisis.
"Considering the time lag of the SARS impact in some fields, we are
forecasting total annual losses at about 5 billion yuan (some 602
million US dollars). We are also predicting that Beijing's economic
growth rate will decline by about 1.5 percentage points this year,"
said Wang.
Wang said the Beijing economy got off to an excellent start this year,
up 12.7 percent in the first quarter. However, the ensuing SARS crisis
slowed Beijing's economic development, especially the service
industry.
Given the fact that the government successfully contained the SARS
epidemic and adopted effective policies to promote economic growth,
the impact on Beijing's economy has been limited, Wang said.
Despite the impact of SARS, Beijing's gross domestic production (GDP)
between January and June reached 151.61 billion yuan (18.26 billion US
dollars) and saw growth of 9.6 percent, the mayor said.
He predicted that Beijing's economic growth will reach about 9- 10
percent in 2003.
************************View from Toronto,
Canada***********************
HEADLINE: Eves takes action to speed economic recovery from SARS
DATELINE: TORONTO, July 24
BODY:
Ernie Eves, Ontario's Premier, today moved
aggressively to speed Ontario's economic recovery from SARS by
appointing
highly respected business executive Ron Barbaro as a Special Advisor
to
spearhead recovery efforts, and to help renew and revitalize Ontario's
economy.
"We are moving forward with aggressive actions to help rejuvenate
Ontario's economy," Eves said. "Ron Barbaro will provide strong
creative
leadership to determine what has to be done and then do it. Mr.
Barbaro
understands business and understands community and will help
coordinate our
efforts on both sides in order to make things happen."
Barbaro has had a long and distinguished business career,
including
serving as President and CEO of the Prudential Insurance Company of
America's
worldwide operations. Most recently, Barbaro served as Chairman and
CEO of the
Ontario Lottery and Gaming Corporation, an agency of the Government of
Ontario.
Eves also announced that an advisory team made up of business and
community leaders would support Barbaro by analyzing challenges,
creating
innovative initiatives and implementing them. The group includes: Paul
Beeston, Hilary Weston, George Cohon and Charles Baillie.
SARS has had a significant impact on Ontario's economy, with the
tourism
and hospitality sectors being especially hard hit. The Toronto tourism
industry has lost an estimated $325 million since March 2, 2003.
Eves also announced that he has seconded his Chief of Staff, Steve
Pengelly, to lead a small staff which will support the Special
Advisor's role.
Pengelly, who has served as Chief of Staff since Eves was elected
Premier in
March of 2002, will begin work immediately. The Special Advisor and
his team
will work with public and private-sector partners to identify the
obstacles to
full recovery, develop creative solutions and act on them.
"There is no doubt this will be a tough assignment, but I am
excited
about using the skills I have acquired through my various business and
community activities and tackling this challenge as we work to get
this
province's economy into a positive mode," said Barbaro.
The Eves government responded immediately to the outbreak of SARS
and its
impact with the introduction of the SARS Assistance and Recovery
Strategy Act,
passed on April 30, as well as investing over $1.1 billion in health
care,
assistance programs and economic recovery initiatives.
Disponible en franEcais
www.premier.gov.on.ca
***********************View from
Taiwan********************************
HEADLINE: Taiwan think tank cuts 2003 GDP growth forecast on SARS
impact
DATELINE: TAIPEI, July 18
BODY:
The Chunghua Institution for Economic Research (CIER) Friday cut its
2003 economic growth forecast to 3.02 percent from 3.51 percent
because of the worse-than-expected impact of the SARS outbreak.
It said private consumption in the second quarter of 2003 probably
fell 0.67 percent from year earlier due to the SARS crisis, compared
with its previous forecast of 1.77 percent growth, while foreign trade
remained relatively stable.
As a result, CIER downgraded its economic growth estimate for the
second quarter to 1.56 percent from the earlier forecast of 2.98
percent. For the year, it still estimates private consumption will
grow 1.62 percent.
"The (SARS) epidemic was more serious than we had expected. The
outbreak badly hit private consumption in the second quarter of this
year," said associate research fellow Peng Su-ling.
The government's Directorate General of Budget, Accounting and
Statistics is scheduled to release the second quarter data in August.
Severe Acute Respiratory Syndrome (SARS) rampaged throughout the
island in April and May, killing 84 people out of 671 cases.
Peng said Taiwan's bilateral trade growth had remained relatively
stable.
She said exports in 2003 are expected to grow 7.13 percent from a year
earlier, compared with the April forecast of a 6.71 percent rise,
while imports are expected to expand 6.23 percent, compared with the
previous 7.54 percent estimate.
Exports in 2002 grew 9.67 percent while imports rose 6.15 percent.
"Exports remain the driving force of Taiwan's economy. China will
continue to be the most important market," Peng said.
China is the largest buyer of Taiwan-made goods, absorbing about a
quarter of the island's exports.
Chou Zi, another economist at the CIER, said that with the SARS impact
fading and signs of an economic recovery in the US, Taiwan's economic
fundamentals are expected to improve in the second half of this year.
"The strength is expected to continue into the 2004," Chou said.
The island's economy grew 3.54 percent in 2002 and the think tank is
forecasting 4.04 percent for 2004 given the improving economic
fundementals.
***********************************************************************
Estimated direct cost of the SARS outbreak to the travel industry
this year in four of Asia's hard-hit regions:
Estimated losses Estimated Job
(in billions) losses
China $7.6 2,800,000
Hong Kong $1.2 27,300
Singapore $1.1 17,500
Vietnam $0.1 61,600
Source: World Travel and Tourism Council |
