ASIA-PACIFIC REGION
Philippine economy may shrink by 2pc — S&P
S&P Global Ratings expects the Philippine economy to shrink by 2 percent this year — a sharp revision from its 4.2 percent growth estimate given in March — as the world comes to grips with the human and economic price of the novel coronavirus pandemic.
The debt watcher had projected a baseline 6 percent gross domestic product (GDP) growth for the country in December, long before the coronavirus disease 2019 developed into a global health crisis.
The expected contraction compares with the flat growth or a contraction of as much as 1 percent estimated by Finance Secretary Carlos G. Dominguez before the one-month Luzon-wide lockdown was extended until April 30.
“There are no shortcuts, no silver bullets to help us understand what the human and economic price of the COVID-19 pandemic will be,” S&P said in a report dated April 16.
“Only with experience and data can we learn the key lessons, among them: how long lockdowns need to last, how economies can reopen before a lasting medical solution is found, and what lasting imprint this episode will leave across the global economy,” it added.
“Tracking this crisis requires constant updating of our assumptions and models to help understand what the broad contours of pandemic will look like over the coming years,” the rating company said.
Meanwhile, S&P upgraded its 2021 growth forecast for the country to 9 percent from the 6.4 percent baseline forecast in December.
S&P cut its 2020 growth projection for Asia Pacific to 0.3 percent from 4.8 percent it gave in December, assuming the lockdown will last a month.
“Our forecasts now imply a loss in household and corporate income of about $2.2 trillion in Asia], which will be distributed across balance sheets,” it said.
“We expect economies to enter a transition period where social distancing measures will be along a continuum between full lockdowns and business-as-usual until mid-2021,” it added.
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Malaysia’s economy to bounce back to 9pc in 2021, says IMF
The International Monetary Fund (IMF) expects Malaysia’s economy to bounce back to grow a whopping nine percent next year, from an expected 1.7 percent contraction in 2020.
This will be the fastest among Asean-5 economies, which according to the IMF is likely to expand at an average 7.8 percent next year.
Asean-5 also comprises Indonesia, Thailand, the Philippines and Vietnam, whose gross domestic product (GDP) are projected to grow 8.2 percent, 6.1 percent, 7.6 percent and 7 percent respectively.
Malaysia’s solid projection will also set to outpace the global GDP growth, which the IMF expects to recover 5.8 percent next year, sharply higher than the contraction of 3.0 percent for 2020.
“Domestically, in 2021, we are cautiously optimistic that consumer confidence and sentiment will turn positive and Malaysian households will remain financially sound, supported by improving employment conditions and stable incomes, as global and domestic economies recover next year,” the IMF said.
“We believe Malaysia’s economic fundamentals will remain sound going forward, supported by the government’s fiscal discipline and fiscal consolidation, a sustainable (though narrowing) current account surplus, healthy foreign-exchange reserves as well as manageable inflationary pressure,” it added.
The Washington-based fund, in its statement late Tuesday, cautioned of “extreme uncertainty around its global growth forecast.
This was due to the pathway of the Covid-19 pandemic including intensity and efficacy of containment efforts, extent of supply disruptions and repercussions of the dramatic tightening in the global financial market.
Analysts expects the IMF to make further downward revisions to global GDP forecasts this year and 2021.
Affin Hwang Investment Bank Bhd believes that no emerging markets, including Malaysia, can escape the downside risks of global recession this year, as advanced economies fall into recession.
Affin Hwang believes sovereign rating agencies would continue to monitor Malaysia’s macroeconomic developments, focusing on its economic growth, fiscal deficit and government debt, from the impact of Covid-19 and low global oil price.
“We believe that improving Malaysia’s economic fundamentals will likely be the best option to ensure that the country’s sovereign rating outlook be kept as stable by international rating agencies.”
Affin Hwang said there is a need for pragmatic measures on the tax and expenditure programme to improve the government’s budgetary position, and remain committed towards fiscal discipline and consolidation.
“We believe the government will be looking at ways to cut discretionary spending and slow the increase in operating expenditure to safeguard the country’s operating surplus position since 1987.
“A sizeable operating surplus is important, where historically, the country’s annual deficits were financed partly by government borrowings channelled towards development projects, and not for operating expenditure.”
The government might be required to make some adjustments to the 2020 Budget and fiscal deficit target, if there is a need to introduce further new stimulus measures, Affin Hwang said.
“Following the announcement of the additional Prihatin stimulus package on April 6, the direct fiscal injection by the government has increased from RM25 billion to RM35 billion. This is equivalent to 13.5 percent of the total stimulus.
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China’s economy suffers its first contraction in 28 years
China’s economy shrank in the first three months of 2020, its first contraction since 1992, as production and spending were frozen by the country’s coronavirus lockdown.
The National Bureau of Statistics reported on Friday that gross domestic product fell by 6.8 percent during the quarter. China hasn’t reported a full year of contraction since the 1970s.
The sharp contraction reflects the weakness in consumer spending and investor confidence while the novel coronavirus has flattened economies around the world. The central Chinese city of Wuhan, where the virus first emerged, revised its death toll about 50 percent higher on Friday, to 3,869 from 2,579, as the city said it had developed a clearer picture over time.
The economic data released Friday showed that industrial production fell by 1.1 percent year-on-year, retail sales of consumer goods fell 19 percent, investment in fixed assets fell by 16.1 percent, and imports and exports were down by 6.4 percent — all worse than estimated.
China was keen, however, to present positives, saying that overall national economic and social development in the first quarter was stable despite the outbreak of COVID-19.
“The result modestly is on the rosy side of what we believe actually happened in Q1,” said Miguel Chanco, a senior Asia economist at Pantheon.
“But the official data were very close to the reality in the grand scheme of things, and that should be welcomed, despite the damning picture they paint,” he said of China’s statistics.
Chanco also said analysts at Pantheon expected a full-year contraction, though he noted that “official headlines are unlikely to show that.”
The American economist Nouriel Roubini remarked on Friday that the decline in China’s GDP was a “depression rate of economic collapse.” Roubini said of April showed positive economic growth for the country but the collapse in the first quarter was “staggering.”
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Indian economy will grow despite covid-19
The Reserve Bank of India (RBI) has said that despite the setback to the Indian economy due to the Covid-19 crisis, India will continue to grow at 1.9 percent during the current fiscal year.
RBI Governor Shaktikanta Das said that India is “among the handful of countries that is projected to cling on, somewhat tenuously, to a positive growth rate of 1.9 percent. This is the highest growth rate among the G-20 economies as estimated by the International Monetary Fund (IMF)”.
India is expected to see a sharp turnaround and resume its previous growth trajectory by growing at 7.4 percent in 2021-22, he added. He also said that India’s central bank has been monitoring the situation very closely.
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Indonesia braces itself for social unrest amid economic downturn
The Indonesian government is bracing itself for social unrest ahead of the Ramadan fasting month amid the economic downturn caused by the Covid-19 pandemic, which has hit purchasing power and put many people out of work.
The Executive Office of the President held an online meeting with the National Police’s Security Intelligence Agency (Baintelkam) on Wednesday (April 15) to discuss various economic measures and prepare for an increase in crimes and security threats.
The government is making preparations to ensure that the increase in unemployment “will not result in social and security conflicts”, the Office’s undersecretary for politics, law, defence and human rights, Jaleswari Pramodhawardani, said in a statement on Thursday (April 16).
Baintelkam state security director Umar Effendi said that based on the police’s internal studies, there was a risk of an increase in crime that could disrupt public order and security.
“There will always be potential for riots and crimes, especially at a time like this. Therefore, we (the police) are coordinating efforts down to local police forces to conduct supervision and (public) education,” he said in the statement.
Brigadier-General Umar said the police will stand on the front line to keep the public safe.
“We would use a preventive and persuasive approach for security, stability and public order. We would also help the government by escorting the distribution of social aid for impacted residents,” Brig-Gen Umar added.
Economists have warned that government must safeguard social aid and food supplies to prevent social unrest as the pandemic has had a severe impact on workers and households.
The government has set aside 436.1 trillion rupiah (US$26 billion), equivalent to 2.5 percent of the country’s gross domestic product, for stimulus packages that are focused on healthcare spending, social protection and economic recovery.
Meanwhile, some of the 37,000 prison inmates granted early release or put on parole nationwide to prevent the spread of Covid-19 in overcrowded prisons have been sent back to jail for committing crimes again.
This has been a blow to the Indonesian government’s controversial early release policy.
By Wednesday, the authorities has sent at least 12 of the 37,000 released inmates back to prison for various crimes, including drug dealing and theft, according to the Law and Human Rights Ministry’s Corrections Directorate-General.
“These 12 inmates could give a bad name to the others granted early release. However, we will carry on with the policy (of early release),” Corrections Directorate-General spokesman Rika Aprianti said.
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Will the pandemic derail Bangladesh’s economic growth?
Bangladesh has been a major beneficiary of globalization. The country has benefitted from the outsourcing of production to places where it can be done in a more cost-effective way. The ready-made garments (RMG) industry is labor intensive and labor is available in Bangladesh in abundance at a cheap price. The abundance of labor has also made Bangladesh a major labor exporting country, bringing valuable foreign exchange. It also helps in the balance of payment situation. The political stability in Bangladesh in the last decade and propitious circumstances brought on by globalization has resulted in very fast economic growth in the country. Bangladesh’s GDP growth in last few years has averaged around 8 percent. This was happening at a time when economic growth in rest of the world was slowing down. However, this fast economic growth has been disrupted by the outbreak of the COVID-19 pandemic.
The RMG industry and remittances from overseas workers are the two biggest contributors to Bangladesh’s foreign exchange reserve. Manufacture and export of RMG contributes 13 percent to the GDP of the country. It employs nearly 4 million workers. It is estimated that out of this 1 million workers are already unemployed.
For the RMG industry, major export destinations include the United States, U.K., Germany, France, and Italy. However, garment stores in these countries are now shut. People have already limited their discretionary spending. Exporters in Bangladesh are now not getting their payments on time. Buyers are cancelling or modifying orders. As a result of this, industry owners are finding it difficult to pay salaries to workers. Laid-off workers are returning to villages, creating additional problems in the rural economy. The unemployment of these workers and the shutdown will create further problems in the realm of food security.
Remittances are another major source of foreign exchange. According to World Bank data, Bangladesh received $15.5 billion in remittances in 2018, 15 percent higher compared to the previous year. In 2017, Bangladeshi migrant workers sent $13.5 billion back home. Bangladesh was the third highest recipient of remittances in South Asia in 2018, after India and Pakistan, and the 11th highest recipient globally.
Nearly 10 million Bangladeshis are working in foreign countries. Most of them are in Gulf countries, Western countries, and some Southeast Asian countries like Malaysia. A large number of these workers are now returning home because of the disruptions in their host countries. Many host countries now have travel restrictions and economic slowdowns of their own. These returnees generate additional problems, both with regard to possible new infections and the economy. They also won’t be able to return to their usual places of work abroad until the global situation improves.
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IOC: postponed Olympics ‘to kickstart’ japan economy
Postponing the Tokyo 2020 Olympics will provide a welcome boost to the coronavirus-hit Japanese economy next year, a senior International Olympic Committee official claimed on Thursday.
With tens of thousands dying around the world from the coronavirus, the IOC and Japan last month took the historic decision to delay the Olympics by one year, with an Opening Ceremony planned for July 23, 2021.
The pandemic has devastated the global economy as economists predict a second Great Depression, with $9 trillion wiped out and tens of millions of jobs lost.
Japan, the world’s third-largest economy, is no exception, but IOC official John Coates told reporters holding the Games in 2021 could be a “very positive opportunity for an economic stimulus” that could “kickstart the economy again.”
“I think there will be a lot of countries and cities around the world wishing for a similar opportunity,” he said.
Economists at SMBC Nikko Securities have estimated postponing the Games would reduce Japan’s GDP this year by some $6 billion—to be recouped next year if the Olympics actually take place.
Coates claimed Japanese Prime Minister Shinzo Abe “may well have had in mind that your country may be in a recession then and this would be an opportunity for a great economic stimulus”.
In terms of the budget, organisers have already recognised there will be “massive” additional costs from the $12.6 billion the Games were supposed to cost—shared between the Japanese government, Tokyo 2020 and the host city.
Coates said they would use the postponement to look at ways of reducing those additional costs. Organisers would look at “what are the must-haves and what are the nice-to-haves,” he pledged.
Moving the world’s biggest sporting event is an unprecedented challenge that touches on every aspect of the organisation—from hotels to venues and volunteers.
Organizers have stressed they are working towards a new Opening Ceremony on July 23, 2021 but Tokyo 2020 CEO Toshiro Muto has admitted uncertainty over the global impact of coronavirus.
There is “no Plan B,” Tokyo 2020 spokesman Masa Takaya told reporters at an online briefing on Tuesday.
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Bank of Thailand’s BSF faces slew of criticism
The Bank of Thailand’s mechanism to inject liquidity to help stabilise the debenture market has yet again been met with criticism from one of the central bank’s alumni, with the main objection centring on the move’s failure to effectively address the problem’s root causes.
Amid risks that many corporations will experience a liquidity shortage, the central bank agreed to set up a 400-billion-baht Corporate Bond Stabilisation Fund (BSF) to provide bridge financing to high-quality firms with bonds maturing during 2020-21.
The fund is a pre-emptive move to prevent the impact of the coronavirus pandemic from affecting financial stability.
The scheme does not cover non-investment-grade bonds, as these instruments are favoured by high-net-worth investors who are more sophisticated.
The outstanding total on the Thai corporate bond market amounted to 3.6 trillion baht in February, accounting for more than 20 percent of GDP.
To be eligible for the BSF, corporate bond issuers must have raised the majority of their funding needs through other means such as bank loans or capital increases, have a clear long-term financing plan and meet other conditions as set out by the BSF’s investment committee later.
But the move has drawn both advocates and critics, with the latter camp arguing that the planned corporate bond purchases go beyond the central bank’s remit and any damage could come at a cost to the public.
Onetime finance minister and former central bank deputy governor Thirachai Phuvanatnaranubala was among the first to voice his opposition to the BSF, saying the Bank of Thailand should not play a role as a banker for companies and judge which companies deserve assistance.
Investment-grade bonds could be junk bonds in the next three months amid the global crisis, Mr Thirachai said.
Navaporn Ruengsakul, a former secretary-general of the Government Pension Fund, is the latest to criticise the debenture-purchasing programme.
Ms Navaporn compared how the move has a tendency to be at the wrong end of addressing the problem, akin to a policy devised over 20 years ago during the 1997 financial crisis.
During that time, the central bank diagnosed that a liquidity shortage among finance companies was the root cause of the problem and failed to devise a proper measure to help good debtors, which effectively snowballed the problem, she said.
“This time, the central bank views that the Thai capital market is facing a ‘liquidity’ problem and is afraid that it will affect commercial banks and therefore will bail out debt securities by allowing commercial banks to be part of the risk,” Ms Navaporn said.