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Asian Economy: Overview, Growth & Development

ASIA-PACIFIC REGION
Philippines GDP declines for first time since 1998 on shutdowns

The Philippine economy contracted in the first three months of 2020 as restrictions to stem the coronavirus outbreak shut most businesses and sapped consumption, a trend seen worsening in the current quarter.

Gross domestic product fell 0.2 percent in the first quarter compared to a year ago, using 2018 as the new base year, the Philippine Statistics Authority said Thursday. That was worse than the median estimate of a 2.9 percent growth in a Bloomberg survey of economists and was the first contraction since the fourth quarter of 1998, according to the agency.

GDP slumped by 5.1 percent in the three months ended March 31 compared to the previous quarter, deeper than the 2 percent contraction expected by economists. That’s the worst quarter-on-quarter performance on record.

“Saving hundreds and thousands of lives has come at a great cost to the Philippine economy,” Acting Planning Secretary Karl Kendrick Chua said at a virtual briefing. The second quarter will be worse because of the lockdown since mid-March that covers the capital and much of the Luzon island that accounts for more than half of domestic output.

Last quarter’s print surprised many analysts including Standard Chartered Plc’s Chidu Narayanan and Natixis Asia Ltd’s Trinh Nguyen who both see more policy rate cuts on the horizon.

Vietnam may be able to avert a recession in 2020

Vietnam may be able to avert a recession this year as the country gets back to work and school after early coronavirus containment measures, an economist said on Monday.

“They are not going to be immune to the slowdown of external global demand … But we don’t expect them to fall into a recession or contraction,” said Sian Fenner, lead Asia economist at Oxford Economics.

That is as Vietnam’s early border restrictions and social distancing measures have helped the country avoid a large wave of infections.

The country also benefited from supply chain diversions due to the U.S.-China trade war and Fenner said those will continue to support the Vietnam’s economy.

On Monday, millions of students went back to school after three months at home, making Vietnam one of the first in Southeast Asia to ease movement restrictions. The country closed schools in early February when the first local cases were detected.

Despite sharing a land border with China where the coronavirus first emerged, Communist Vietnam has reported just 271 cases and no deaths in a population under 100 million. It has not reported any new local cases in nearly three weeks.

Pandemic sets Japan on course for deep recession

Japan’s household spending plunged in March and service-sector activity shrank at a record pace in April, reinforcing expectations that the coronavirus pandemic is tipping the world’s third-largest economy into deep recession.

Overtime pay – a barometer of strength in corporate activity – also plunged at a record pace in March, data showed, a sign companies were hit by shrinking business even before the government announced a state of emergency in early April.

The weak readings make it a near certainty the economy suffered a second straight quarter of contraction in January-March, the technical definition of a recession, and was on track for a deeper decline in the current quarter as the health crisis kept shoppers home and businesses closed.

“Even without the virus, Japan’s economy was very weak due to the hit from last year’s sales tax hike. The pandemic has completely destroyed any chance of a recovery,” said Taro Saito, executive research fellow at NLI Research Institute.

“The economy may rebound somewhat in July-September but won’t return to pre-coronavirus levels for the rest of this year,” said Saito, who expects the economy to contract an annualised 30 percent in the current quarter.

Household spending slumped 6.0 percent in March from a year earlier following a 0.3 percent fall in February, marking the biggest drop in five years, government data showed on Friday.

The decline, a tad smaller than a median market forecast for a 6.7 percent fall, was due largely to plunging demand for travel, clothing and eating out as the government asked citizens to refrain from going out and some businesses to shut down.

There were some winners with firms that provide catering for people at home seeing increased business.

Spending on pasta jumped 44 percent as people cooked at home more often, while purchases of gaming consoles more than doubled as school closures kept children housebound. However, those increases were not enough to make up for the plunging demand for other items.

Bangladesh economic review

The coronavirus pandemic will drive an additional 13 million people into poverty, cut 3.7 million jobs, take budget deficit to as high as 7.5 percent and inflict a minimum revenue loss of 2 percent of GDP in Bangladesh as the killer bug is wreaking havoc throughout the economy, the Asian Development Bank (ADB) has warned.

The grim picture was painted as the Manila-based development lender yesterday approved an additional $500 million loan for Bangladesh to bolster its efforts to manage the impact of the pestilence on the economy and the public health.

This is the first budget support from any development lender to Bangladesh after the outbreak of the coronavirus, as it seeks more than $3 billion initially from development partners to ward off the impact of the virus and embark on implementing its $11.3 billion-strong stimulus packages.

The Asian Infrastructure Investment Bank (AIIB) is planning to provide $250 million in co-financing with the ADB to support the government’s programme.

This package will build on ADB’s ongoing collaboration with Bangladesh on structural reforms by supporting the government efforts to speed up the country’s social and economic recovery, said ADB President Masatsugu Asakawa.

“We will work closely with the government and development partners to mitigate the economic impact of the pandemic on the poor and most vulnerable, particularly those affected by job losses in small and medium enterprises and the informal sector.”

Since March 26, Bangladesh has virtually shut its entire economy to flatten the curve on coronavirus.

Still, the country is moving to the fourth stage of infection (community transmission), with 59 of the country’s 64 districts affected.

As of yesterday, the total number of infections and fatalities stood at 12,425 and 199 respectively.

“Given the density of the country’s population, sizable slum population and underdeveloped medical system, Bangladesh faces significant challenges in containing the disease,” the ADB said.

Moody’s estimates no GDP growth for India in fy21

Moody’s Investors Service on Friday said it estimates India’s GDP growth to hit ‘zero’ in FY21 and pointed to a wide fiscal deficit, high government debt, weak social and physical infrastructure, and a fragile financial sector.

The quality of India’s economic growth has declined in recent years, demonstrated by financial stress among rural households, relatively low productivity and weak job creation, the agency said.

In its forecast for FY21, the agency estimated India’s gross domestic product (GDP) growth at zero, meaning the country’s economic growth will remain flat this financial year, and the same is seen accelerating to 6.6 percent in FY22.

In its credit opinion which comes following the change in the forecast, Moody’s warned that the COVID-19 “shock will exacerbate an already material slowdown in economic growth, which has significantly reduced prospects for durable fiscal consolidation”.

 

Analysts across the board have been certain about the heavy economic toll that the pandemic will take on the country.

Moody’s local arm Icra has pegged for a contraction of up to 2 percent in the growth as a result of the crisis, which has seen the country being put under a lockdown for nearly two months to arrest the spread of infections.

Late last month, Moody’s had slashed its calendar year 2020 GDP growth forecast to 0.2 percent.

Its negative outlook on the sovereign rating, which was revised last in November 2019 from ‘stable’, reflects increasing risks that economic growth will remain significantly lower than in the past, it said, adding that this takes into account the deep shock triggered by the virus outbreak.

Indonesia’s economy heads into turbulence as q1 growth plunges

Indonesia’s economy is heading into turbulence as the COVID-19 pandemic is expected to further batter growth after the country recorded the weakest economic expansion since 2001 in the first quarter of the year, economists have warned.

The country’s gross domestic product (GDP) grew 2.97 percent year-on-year (yoy) in the first three months of the year as household spending and investment growth slowed amid the coronavirus outbreak, Statistics Indonesia (BPS) announced on Tuesday. The growth is weaker than the government’s, the central bank’s and economists’ projections of around 4 percent.

“The sudden stop in economic activity during the first quarter marks the beginning of weak GDP growth caused by the pandemic,” University of Indonesia economist Fithra Faisal told on Tuesday. “We are heading into the weakest growth since the 1998-1999 Asian financial crisis.”

He expected the economy to contract 0.8 percent if the pandemic continued into the third quarter, adding that the economy would grow at a range of between 1.2 and 2 percent if the health crisis subsided by June.

“It is crucial to immediately end the virus crisis through containment measures,” Fithra said.

The Jakarta Composite Index (JCI) erased some of its gains on Tuesday after the announcement but closed trading up 0.53 percent to 4,630.13 while the rupiah appreciated by 0.13 percent to Rp 15,080 per US dollar on the day.

Four provinces and 22 regencies/cities nationwide have implemented large scale social restrictions to contain the virus spread, forcing businesses to close and hitting demand as people are required to stay at home. More than 12,000 people have contracted the disease in Indonesia with a death toll reaching at least 870 as of Tuesday afternoon, official data showed.

Household spending, which accounts for more than half of GDP, grew sluggishly by 2.84 percent in the first quarter – far lower than the 5.01 percent recorded over the same period in 2019, while investment, the second-largest contributor, grew 1.7 percent versus the 5.03 percent recorded in January-March last year.

Government expenditure grew by 3.74 percent in the first quarter, lower than the 5.22 percent growth recorded in the same period last year. Exports increased by 0.24 percent while imports contracted by 2.19 percent as Indonesia’s major trading partners, such as China, went into lockdowns.

Fitch Solutions wrote in its research note on April 22 that it expected consumer spending growth to tank to 1.2 percent this year as more Indonesians lose their jobs during the pandemic.

“The second quarter GDP growth is expected to be significantly lower than that of the first quarter as the prolonged pandemic limits people’s travel and activities,” Bank Mandiri economist Andry Asmoro said. “Furthermore, high uncertainty about when the COVID-19 pandemic will completely end could drag down the full-year figure to below 2 percent.”

China, US commit to implement trade agreement despite coronavirus row

Chinese and US trade representatives agreed Friday to “create favorable conditions” for the phase one trade deal signed in January, officials said, despite recent tensions over the coronavirus pandemic.

Vice Premier Liu He, who had led Beijing’s negotiations, held a call in the morning with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.

“Both sides said they should strengthen macroeconomic and public health cooperation, strive to create a favorable atmosphere and conditions for the implementation of the phase one US-China economic and trade agreement, promoting positive results,” a notice from China’s Ministry of Commerce said.

US officials said after the call that both parties agreed “good progress” is being made on creating the governmental infrastructures needed to make the agreement a success.

“They also agreed that in spite of the current global health emergency, both countries fully expect to meet their obligations under the agreement in a timely manner,” said the Office of the US Trade Representative and Treasury in a statement.

The countries have also agreed to maintain communication and coordination.

The call is believed to be the first time they have officially spoken about the agreement since it was signed, and comes after both nations traded barbs over the deadly virus.

Last week, US President Donald Trump threatened new tariffs against China after claiming there was evidence linking COVID-19 to a top-security lab in the central city of Wuhan, where the pathogen first emerged late last year. China has denied the claims.

In January, Beijing agreed to import an additional $200 billion in US products over two years, above the levels purchased in 2017, marking a truce in a bruising trade war that had hammered the global economy for almost two years.

But analysts question if China will be able to fulfill the ambitious commitments after the virus outbreak brought business activity to a near halt earlier this year.

Recovery has been slow since, and consumption has yet to bounce back to pre-virus levels.

China’s imports plunged 14.2 percent in on-year in April, after a 0.9 percent dip the month before, even though the country has largely brought the coronavirus under control locally.

Nick Marro of The Economist Intelligence Unit said that “shipments from the US remain well below the levels needed to achieve the purchase pledges under the trade accord.”

He added that the pandemic has disrupted supply and demand on both sides of the Pacific, highlighting risks around the survival of the deal.

Although China’s exports defied expectations to rise 3.5 percent in April, economists believe this is unlikely to last as figures were boosted by shipments of medical supplies against the global pandemic, as well as fulfilments of a backlog built up from a slow business resumption in the first quarter.

Mnuchin said this week, however, that he expects China to uphold the deal signed this year, warning of “very significant consequences” if that did not happen.

The US runs a trade deficit with China, and the objective has been to realign the trade balance between both countries.

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