Asia-Pacific Region
Japan’s economy is bottoming out, eyes on recovery: finance minister
Japan’s economy appears to have hit bottom and is eyeing a recovery from the damage caused by the coronavirus pandemic, its finance minister said, underscoring cautious optimism spreading among policymakers after the relaxation of lockdown measures.
The remarks come ahead of next week’s rate review by the Bank of Japan, which is likely to hold off on expanding stimulus and stick to its view the world’s third-largest economy is headed for a gradual recovery.
“We’ve succeeded in putting a floor on the economy, which seems to have hit bottom. How strong the recovery will be depends not just on domestic conditions but overseas developments,” Finance Minister Taro Aso told parliament on Friday.
He added that conditions surrounding Japan’s economy will remain “severe” for the time being due to risks such as the chance of a second wave of infections.
Late on Friday, Japan’s parliament is set to pass a record second supplementary budget that will partly fund a $1.1 trillion stimulus package aimed at getting activity back on track after the health crisis.
Aso rebuffed the idea of compiling a third extra budget, saying it was premature to discuss it.
“We first have to see how the measures we’ve taken so far affect the economy,” he said.
Prime Minister Shinzo Abe declared a state of emergency in April, requesting businesses to close and citizens to stay home, a move that dealt a severe blow to company profits and consumption.
While the state of emergency was lifted in late May, analysts expect economy suffered more than a 20 percent annualised contraction in the current quarter, after having slipped into recession in January-March.
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Despite tight financial position, Malaysia’s economy is expected to recover gradually this year: analysts
Malaysia has been hit with a series of stiff challenges this year – the COVID-19 pandemic, crash in global oil prices and political instability which saw an unexpected change of government.
With most business activities halted for about two months in a lockdown since Mar 18, the country’s central bank estimated the economy to contract as much as 2 percent, or grow as up to 0.5 percent this year. This is markedly lower than the original target of a 4.8 percent expansion.
To cushion the economic blow, stimulus packages worth RM295 billion (US$69.2 billion) in total have been rolled out. Around 15 percent, or RM45 billion, is direct fiscal injection from the government.
Having taken the latest stimulus package announced last Friday (Jun 5) into consideration, Finance Minister Tengku Zafrul Aziz said that fiscal deficit is expected to almost double from 3.2 percent of economic output last year to 6 percent this year.
As COVID-19 infection rate slows following the implementation of stay-home order, Malaysia has allowed some economic sectors to operate again beginning May 4.
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Coronavirus: economy down, poverty up in Bangladesh
The global health crisis caused by COVID-19 has hit Bangladesh’s economy hard and jeopardized the country’s impressive achievements in poverty reduction. Against this backdrop, Dhaka is set to announce its annual budget.
People in his area call Imran Hossain an all-rounder. The daily wage laborer can fix electric lines, clean the drainage clogs or cut wood to fix the roofs. His daily earnings ranged from 300 to 500 taka (€3-€5/$3.50-$5.90).
But, since mid-March, Hossain has had no work and no money to feed his wife and two children. “Coronavirus has spread like anything. People are scared and don’t call me for any work,” Hossain told DW. Hossain lives in Cumilla, a district that lies about 100 kilometers (62.1 miles) to the southeast of the capital Dhaka and is one of the regions hit hard by the massive health crisis caused by the novel coronavirus.
Bangladesh has so far recorded 71,675 COVID-19 cases, with the disease claiming 975 lives until now.
A recent study conducted by a group of local NGOs concluded that every three out of five people in the country are at high risk of facing economic and health vulnerabilities. “Those people who are losing their jobs are from the bottom of the pyramid,” said KAM Morshed, an expert working for the local NGO BRAC.
According to the study, among the 100.22 million people at high risk of economic and health vulnerabilities, 53.64 million are extremely poor. These people earn less than 160 Taka (€1.7, $1.9) a day. “In a more recent study conducted until May 26, more than half of these extreme poor people told that they have run out of money,” Morshed told DW.
Due to a severe constriction of economic activity as a result of the COVID-19 pandemic, more and more people like Hossain are going down the extreme poverty lane.
According to the South Asian Network on Economic Modeling (SANEM), Bangladesh’s poverty rate may double to 40.9 percent from that prior to the onset of the pandemic. Morshed said, “The poor and vulnerable people are becoming more vulnerable. So we expect the inequality in society to increase.”
People like Hossain are also part of the informal sector, which accounts for almost 80-90 percent of the jobs in Bangladesh. The pandemic has hurt them the most. Between March and May, the average family income subsided by as much as 74 percent.
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India economy may contract by 7.3pc in fy21 in case of second COVID wave: OECD
The Indian economy may contract by as much as 7.3 percent in FY21 in case of a second wave of coronavirus outbreak in December quarter which will require reinforcement of new containment and strict social distancing measures, Organisation for Economic Co-operation and Development (OECD) said on Wednesday.
In its latest Economic Outlook, the economic grouping of 37 rich nations said the world economy is likely to contract by 6 percent or 7.6 percent in 2020 depending on whether it experiences a single-hit or a double-hit scenario respectively.
“In the double-hit scenario, a renewed virus outbreak will require a new general shutdown in the autumn. New restrictions on internal migration and disruptions in supply chains would have severe consequences on activity and income while external demand would falter again. In this case, GDP is projected to fall by 7.3 percent (in India) in FY 2020-21, compared to 3.7 percent in the single-hit scenario,” OECD said in its Economic Outlook.
On Tuesday, the World Bank projected the Indian economy to contract by 3.2 percent in FY21. Most professional forecasters including Fitch, S&P and Goldman Sachs have projected the Indian economy to contract at least by 5 percent in FY21.
OECD said in case of a double-hit scenario, the poor, informal workers and small enterprises will suffer disproportionately, while weak bank and corporate portfolio positions will keep the investment rate low, weighing on growth prospects. “Inflation remains under control given economic slack and low oil prices. Public deficit will spike, reflecting faltering tax receipts and needed spending to support people, banks and small enterprises,” it said.
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In India, protecting human lives is the immediate priority and requires additional health care resources and generous support to the poor, OECD said. “Getting activity back and avoiding a durable effect from the crisis on income and jobs require promoting access to credit. An inclusive growth strategy over the longer run should include prioritising social investment and income support for the poor, which can be financed by reducing energy and fertiliser subsidies and the tax expenditures that most benefit the rich, and modernising labour and business regulations to promote quality job creation and extend the social safety net,” it added.
OECD said the over two-month long lockdown in India has taken a heavy toll on the economy, with up to two-thirds of activity either shut down or working at reduced pace during the first four weeks and more than a fourth in the following four weeks according to various estimates. “The unemployment rate has surged. Urban workers with no formal job contract and daily labourers have suffered the most. Millions of domestic migrants have struggled to go back to their villages and families. Agricultural activities have faced labour shortages during a peak, harvesting, season,” it added.
The grouping of rich countries said Indian economy will recover as lockdown measures are eased, but will suffer from scars. “Pent-up demand from postponed consumption and inventory restocking will boost activity. However, domestic demand will suffer from the permanent loss of income in many enterprises and the informal workers who lost their jobs. Uncertainty over the return of working migrants, the difficulty for small enterprises to finance their working capital, and business closures will disrupt supply chains,” it added.
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Indonesian economy could shrink 3.9pc if hit by second COVID-19 wave, OECD warns
The Indonesian economy could witness a 3.9 percent contraction this year, a more dramatic decline than initially expected, if it is hit by a second wave of COVID-19 infections, according to a worst-case projection by the Organization for Economic Cooperation and Development (OECD).
The OECD report, published on Wednesday, highlights the rocky path that lays ahead for Southeast Asia’s biggest economy as the government seeks to spur an economic recovery by reopening the economy this month after more than two months of partial lockdown.
Under a baseline scenario, the Paris-based think tank projects the economy to shrink 2.8 percent this year if the government manages to avoid a second wave of infections. According to officials statistics, roughly 34,000 confirmed COVID-19 cases have been recorded across the country.
“The major risk is of a resurgence of the pandemic in the second half of the year with the corresponding re-imposition of containment measures,” the report reads, noting that the contraction would be the first since the 1997 financial crisis.
President Joko “Jokowi” Widodo recently warned of the possibility of a second wave of COVID-19 infections as the number of new cases continued to soar over the past few days, following the loosening of large-scale social restrictions (PSBB) in several regions. A total of 1,241 new confirmed cases were recorded on Wednesday, surpassing the previous all-time-high of 1,043 new cases recorded the previous day.
Meanwhile, Indonesia will confront a number of hazards as it seeks to reignite the economy, including growing risk aversion, flight to quality and sudden capital reversals, according to the OECD.
“If the labor market rebound is weaker and slower than expected, higher unemployment may weigh on domestic demand and delay the recovery,” the report stated, adding that tourism could suffer for longer than anticipated due to the severity of the shock.
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After COVID-19, can China still become ‘moderately prosperous’?
2020 was supposed to be a triumphant year for China and the Chinese Communist Party (CCP). The country was set to finally transform into a xiaokang shehui – rendered in English as “moderately prosperous society.” Gross domestic product (GDP) and disposable income would be double what they were in 2010, and no Chinese citizens would be living under the national poverty line of 2,300 RMB per year at 2010 prices ($340). Before the Chinese Spring Festival, China’s prospects of achieving xiaokang — “moderate prosperity” — seemed good. To reach its GDP goal, the economy would have had to grow by around 6 percent this year. Poverty alleviation was similarly on track. By the end of 2019, there were still 5.5 million people living in poverty according to the National Bureau of Statistics (NBS). Since 11 million were lifted out of poverty in 2019, completely eliminating poverty this year would be an achievable, albeit still difficult, task.
Enter COVID-19. The epidemic-turned-pandemic paralyzed the Chinese economy for a three-month period and resulted in a historic contraction of GDP by 6.8 percent year-on-year in the first quarter of 2020. Nonetheless, in his annual report to the National People’s Congress (NPC) last Friday, Premier Li Keqiang projected confidence. While the premier announced that, for the first time in 30 years, China will not have an annual GDP target, he reiterated the leadership’s commitment to the long-held goal: “We will win the battle against poverty and achieve the goal of building a moderately prosperous society in all aspects.” However, faced with the pandemic, what kind of xiaokang will the government be able to deliver, and what will look like for China’s most vulnerable, who are hit hardest by the crisis?
To answer these questions, it is important to understand that xiaokang is not one specific target set by China’s current leadership. It was Deng Xiaoping who introduced the concept of “xiaokang shehui” into modern Chinese political discourse, apparently first mentioning it during a talk in October 1979 with Japanese Prime Minister Masayoshi Ohira. Deng later linked xiaokang to a crude policy goal: a quadrupling of GDP and GDP per capita in real terms from 1980 to 2000. Astonishingly, these goals were achieved well ahead of time, with GDP and GDP per capita having grown four-fold in 1995 and 1997, respectively. Xiaokang was frequently invoked by Presidents Jiang Zemin and Hu Jintao during their time in office and has assumed an important role under current President Xi Jinping. Xi has made “comprehensively building a moderately prosperous society” the first of his “Four Comprehensives,” a list of key political goals.