The Asia Story 2020

Tariq Carrimjee, a financial consultant and emerging market specialist shares his views on impact of Covid crisis on the Asian economies from Singapore, Thailand, Malaysia, Japan, Vietnam. Korea to India and China.

Whilst the bulk of the focus has been on the European and American responses to the Covid crisis and the damage done to their economies probably not as much attention has been paid to the Asian economies that have also been severely impacted by the fallout of the pandemic.

Economic devastation is perhaps too strong a term for countries that have been reduced by war but there are just a couple of economies that have escaped the fallout of the coronavirus spread. The proximity of most of these countries to China- the country of origin of the outbreak, and the amount of inter-regional trade dependencies, would make this region the most likely to have suffered the most. And they have suffered.

Singapore may punch far above its weight in the international arena, but it is also, therefore, susceptible to all international currents. Its economy is highly integrated into the globe and relies on trade and travel much more than any of the other larger countries in the locality. And so, it comes as no surprise to note that they recorded the largest ever quarter-on-quarter GDP contraction of 42.9% in the second quarter of the year.

This translates to a year on year 13.2% fall in GDP and follows a 4.7% QoQ fall in Q1. The expectation is that the GDP for 2020 will contract overall between 5-7%. The ironic thing is that- despite having 57,000 odd cases reported, there have been only 27 deaths reported due to the virus and that most of the cases have been amongst the migrant workers that are housed in cramped dormitories.

But, given that these workers make up much of the construction industry workforce it is unsurprising that construction activity fell 93% QoQ. Of course, tourism has also been badly affected and that is also responsible for a significant component of economic activity in the island nation.

Thailand has also seen a collapse in its tourism and exports industries along with a drop in domestic activity. With two quarters of successive falls of 2% in Q1 and 12.2% in Q2 and an expectation of a contraction of 7.3-7.8% in GDP for 2020 the Thai have been particularly unlucky given that they too have escaped the worst effects of the virus itself: lockdowns have been lifted and there has been no local transmission in two months now.

But they are a particularly tourist dependent economy and are expecting an 83% fall in annual tourist footfall- to 6.7 million from 2019's 39.8 million. Even exports are expected to fall 10% on the year. A USD 61 billion economic stimulus package and 75bp of rate cuts will not be enough to avert a recession it appears.

The worst affected ASEAN country this quarter has been Malaysia which saw a contraction of GDP of 17.1%. Like Thailand, it has recorded the worst economic numbers since 1998 and much of it is due to the 38.6% drop in Net Exports. It has revised its expected contraction of GDP to between 3.5-5.5% for 2020.

Japan- the second largest Asian economy after China has been suffering anaemic growth at any rate for nearly three decades. They seemed to have lifted themselves to a higher trajectory with Abenomics after 2011 but the virus has slapped all their efforts into the bin. Suffering as they are from an adverse demographic drag, they have just recorded their biggest contraction on record in Q2 this year- 7.8%. Their three quarters of declines have now wiped out all the GDP gains made since Q2 2011! It will be hard to see Japan recover from this as well as the other nations being looked at.

Like Malaysia, the Philippines has been badly affected with a Q2 fall of 16.5% of GDP. The Philippines is particularly dependent upon overseas remittances from Pilipino citizens working overseas and- like the South Asian nations, may have trouble later if these dry up as they are expected to. But even this fall represents the worst number since 1981. Less affected has been Indonesia with only a 5.3% fall in GDP- still the worst numbers this century.

Even South Korea, which escaped the worst of the pandemic has seen two quarterly declines (of 1.3% and 3.3%) but that is because exports, which make up 40% of its GDP, have shrunk 16.6% in Q2. This is expected to lead to a 2-2.5% fall in GDP in 2020. It's only Vietnam that has managed to avoid any scarring from the pandemic and managed to show positive GDP growth- marginal though it may be at just under 0.4%.

China and India have both been covered earlier, partly because of the size of their economies and the fact that they have been both growth outliers in the world stage over the course of this century. They have both fared very differently this year in the spread of the virus and the impact on their economies. China has- despite its large population and being the country of origin of the virus, kept the incidence down to just above 80,000 cases and has bounced back contagion-wise and economically.

It has seen industry powered growth (Industrial output recorded a 4.8% rise in both June and July each) even as retail sales fell by 1.1%. Whilst China is aiming for a more domestically powered economy retail numbers suggest that- unlike the US and Europe, customers are not flocking back to the stores just yet. This may have to do with the fact that China- like the rest of the Asian economies, has a smaller social security net than the Europeans and the Chinese are being more cautious in their consumption spending.

Further, the unemployment rate may be higher than the officially published 5.7%. China are, however, making sure that the investments they make will have long term pay-offs and are focused on future oriented technologies. Something that other countries are not doing.

India is- on the other hand, struggling with its response. Officially, case numbers for the virus have hit 2.7 million and much of the country is in its fifth month of lockdown. Though official 2nd quarter numbers are still to be published at the time of writing the projections for the year range from bad to awful. The World bank has projected a full-year GDP contraction of 3.2%, the IMF has pegged it 4.5% and the domestic rating agency has put it at 9.5%.

The Reserve Bank of India has chosen to reserve its ammunition and not offered any number. Nonetheless, the contraction is expected to damage an unbroken run of over four decades of continuous growth in the Indian economy. Despite the poor numbers there are signs that the government is attempting to use the global anti-China mood to wean over suppliers and manufacturers from China to India with investment sops. The challenge looks daunting at this point given Chinese aggressive responses to both territorial and economic confrontation.

The Asia situation varies considerably. The more exposed nations are to international forces (Singapore) is not expected to fare not much worse than a highly insular economy (India). Size will not save India but has probably helped China. There is no single factor that determines the fate of any country in this crisis. Thailand is still suffering despite managing the outbreak well though Vietnam is not.

Making economic predictions based on this medical virus pandemic has been a risky venture. We can see that even the best prepared countries have not been able to contain the fallout whereas others have been able to escape relatively unscathed. It hasn't been a case of 'luck of the draw' but neither have there been any clear solutions apart from managing the epidemic with determination. The rest will be determined by how soon the rest of the world can get back to business as usual.