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COVID-19 and its impact on the Asian economy

COVID-19 and its impact on the Asian economy

COVID-19 has disrupted businesses of all sizes and industries across Asia Pacific causing ongoing uncertainty. HSBC has recently held a webinar, featuring expert speaker Frederic Neumann, Co-head of Asian Economics Research, HSBC, to discuss the changing outlook and the multifaceted impact of the pandemic on the regional economy. You can read some of the highlights or view a recording of the full webinar below.

 

COVID-19 and its impact on the Asian economy webinar

Speaker: Frederic Neumann, Co-head of Asian Economics Research, HSBC

24 March 2020

The impact of COVID-19 continues to be felt across Asia-Pacific, as businesses look to mitigate the universal economic slowdown while seeking to understand the direction that is being set by newly announced stimulus packages. Frederic Neumann, Co-head of Asian Economics Research, HSBC recently offered some thoughts and insight into the situation.

Contrasting Covid-19 with previous crises

Comparisons are being sought between the current health crisis and the Financial Crisis of 2008 and the SARS epidemic of 2003, to help develop models for the period ahead. Fred suggested that the most important difference from 2008 is that we are not facing a systemic collapse in the financial system.

The differences with the SARS epidemic lie largely in magnitude. Whereas SARS was regionally contained, the current crisis is a global phenomenon. Given this scope, it is likely to take much longer to resolve all cases of Covid-19, but once this confidence returns to the market, whether due to a vaccine being available or more certainty on how the virus is spread, Fred suggested that the rebound would be fast-paced.

Asia-Pacific policy and monetary responses

There is a raft of public and monetary policies being issued in response to the risks from this virus outbreak mainly through reduced trade and increased protectionism. Given Asia’s heavy reliance on globalised trade, Fred expressed the view that the increase in protectionist stances globally could reduce exports and stifle growth when economies are looking to rebound following the current crisis.

Unsurprisingly, in an attempt to meet the increased demands on healthcare systems there has been an uptick in public health measures. Fred also outlined how the stimulus packages of various sizes being rolled out across APAC have softened the economic impact on households and small and medium-sized enterprises. The noteworthy exception is China which has held off using fiscal stimulus at scale, though larger-scale measures are expected soon.

Fred also talked about the recent drop in oil prices, following a significant decrease in global demand. Predictably, most of the impact is being felt in markets that produce and export oil, resulting in reduced revenues and a slowing of economic growth.

Currency viewpoints

APAC currencies were another issue of concern, with many seeing reductions in value due to demand for US dollars from businesses to pay existing liabilities. However, Fred indicated that regional currencies are more resilient now than during the Asian financial crisis of 1997. In fact, he mentioned the possibility of weakened currencies actually working to boost exports and increase trade in the region.

Increased demand for cash is causing central banks to print money. Although helpful in the near-term, Fred did express the view that it will be important to remove this money from the financial system once Covid-19 comes under control.

Sector outlooks

Tourism is a sector that has been seriously affected by the increased travel restrictions. Countries like Thailand, which rely heavily on tourism, are feeling the brunt of this trend. However, Fred believed that as confidence returns, this sector may see a quick recovery.

The manufacturing sector has also been hit hard, as many factories in China have suspended operations or otherwise significantly cut their capacity. This is having a knock-on effect in countries like Vietnam, which have become manufacturing exporters in the wake of increased labour costs in China.

The garment and textile sector is also facing falling orders. This pain may become increasingly acute in APAC as demand side problems and unemployment grow in markets such as the US.

Sectors that provide hope at this time include healthcare which is seeing more funding flow into Research and Development (R&D) and infrastructure demand. Fred suggested that technology as a sector may also remain resilient. With an increase in work-from-home arrangements, there has been more demand for digital infrastructure. This trend may not retreat once Covid-19 is under control with businesses changing models and leaving significant long-term market opportunities for the sector.

Disclosures and Disclaimer

Disclosure appendix

Analyst Certification
The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Frederic Neumann

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Additional disclosures
1 This report is dated as at 11 March 2020.
2 All market data included in this report are dated as at close 10 March 2020, unless a different date and/or a specific time of day is indicated in the report.
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