Japan leads economic ‘zoom boom’ out of recession
It had seen its economy shrink during 2020 as lockdowns hit its manufacturing sector and consumer spending.
The world’s third biggest economy is now showing signs of recovery, although some analysts cautioned that further growth is likely to be modest.
Asian economies are leading the way for a global economic recovery, in what some have called a “Zoom boom”.
This refers to the increase in demand for screens and laptops as more people work from home, and use online meeting platforms like Zoom.
Asian economies are among the largest producers of laptops, communication equipment and other electronics.
The Asian region will also get a boost after signing a mega trade deal agreed over the weekend, called the Regional Comprehensive Economic Partnership (RCEP).
Other signatories include China, South Korea, Australia and Singapore.
A rise in domestic demand as well as exports have helped drive economic growth in Japan.
Japan’s third-quarter gross domestic product (GDP) growth of 5 percent is compared to the previous quarter, which saw its economy shrink 8.2 percent.
This turnaround is the fastest pace on record for Japanese economic growth. At an annualised rate, assuming this growth continued for 12 months, it represents expansion of 21.4 percent.
GDP for the second quarter, covering April to June, was Japan’s worst figure since data became available in 1980 – worse than that of the 2008 global financial crisis.
The bounceback is welcome news for Japan’s government which has avoided the tough lockdown measures seen in some other countries.
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Thailand’s GDP contraction moderates to 6.4pc in q3
Thailand’s economic contraction slowed in the third quarter as exports and domestic tourism started picking up from the pandemic-induced slump, the kingdom’s economic planning agency said Monday.
Real gross domestic product shrank 6.4 percent on the year for the three months ended September, the Office of the National Economic and Social Development Council reported. GDP had fallen 12.1 percent the quarter before that — the most since the second quarter of 1998, which logged a 12.5 percent contraction due to the Asian financial crisis.
On a seasonally adjusted quarter-to-quarter basis, the economy grew by 6.5 percent for the three months ended September, following three consecutive quarters of shrinkage until June. A technical recession is defined as two consecutive quarters of seasonally adjusted negative economic growth.
Thailand imposed business lockdowns and shut its borders to foreigners in an effort to contain COVID-19. While its borders remain closed to most tourists, the business lockdowns had been lifted by the start of the third quarter. Government efforts to promote domestic travel by Thais also helped consumption.
Private consumption expenditures fell 0.6 percent on the year for the third quarter. This marked an improvement from the 6.8 percent fall recorded for the second quarter. Accommodation and food service activities, which contracted by 50.2 percent on the year for the second quarter, shrank less, by 39.6 percent, for the third quarter.
As the world gradually showed signs of getting back to normal, goods exports started picking up, declining only 7.7 percent for the quarter ended September — better than the 15.9 percent contraction of the quarter ended June. Exports of services, which include spending by such nonresidents as tourists, shrank 73.3 percent, surpassing the second-quarter plunge of 68 percent.
The third quarter’s slightly milder GDP contraction was in line with expectations of the market and business leaders. “We can say that our lowest point was in the second quarter,” said Danucha Pichayanan, secretary-general of the economic planning agency, to executives last Wednesday.
“The third quarter is still negative but not a double-digit contraction,” said Chayawadee Chai-Anant, a senior director at the Bank of Thailand central bank, to reporters Oct. 30.
The economic planning agency upgraded its 2020 economic forecast to a 6.0 percent shrinkage from a contraction between 7.3 percent and 7.8 percent. It also revealed its initial 2021 forecast of 3.5 percent to 4.5 percent growth.
The Bank of Thailand is scheduled to hold a monetary policy meeting on Nov. 18. “We have asked the central bank to manage the baht to be supportive for exports,” Finance Minister Arkhom Termpittayapaisith said Wednesday.
The Thai currency has strengthened against the greenback this month, from 31.1 against the dollar to 30.1 — the most expensive level since January. The risk of losing momentum in the export recovery could prompt the central bank to consider using its very limited room for further easing. The bank has cut its policy rate three times this year already.
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Mount Everest empties as covid-19 strikes tourism in Nepal
Just last year, Nepal attracted so many mountain climbers that a human traffic jam of hundreds of mountaineers in puffy jackets snarled a trail to the top of Mount Everest.
The crowds were proof of how fast — too fast, some have said — Nepal’s alpine tourism industry had grown, becoming a lifeline for the country. Last year tourism brought in more than $2 billion to Nepal, one of Asia’s poorest nations, and employed a million people, from porters to pilots.
The pandemic has stopped all of that.
The trails snaking through the Himalayas are deserted, including those leading up to Everest Base Camp. Fewer than 150 climbers have arrived this fall season, immigration officials said, down from thousands last year.
Countless Sherpas and experienced mountain guides have been put out of work, leaving many to plant barley or graze yaks across the empty slopes to survive.
Many Nepalis fear that the combined effect of the coronavirus and the hammer blow to the economy could set this nation back for years.
“I often think I will die of hunger before corona kills me,” said Upendra Lama, an out-of-work mountain porter who now relies on donations from a small aid organization to feed himself and his children. “How long will this go on?”
Although the whole world is asking similar questions, Nepal has few resources to help people cope. Covid-19 cases are steadily rising, and with around 1,000 intensive-care beds for a population of 30 million, the authorities have instructed people who get sick to stay home unless they slip into critical condition. An unknown number may die out of sight and undetected.
The economic wreckage is easier to see. Hotels and the teahouses clinging to the sides of mountains are boarded up. Restaurants, gear shops and even some of the most popular watering holes in the capital, Kathmandu, have closed for the foreseeable future, including the Tom and Jerry pub, which for decades served as a beacon for backpackers.
“There’s no hope in sight,” said the pub’s owner, Puskar Lal Shrestha.
Remittances from Nepalis working abroad have become another casualty. When times were good, millions sent back money from across Asia, especially from Persian Gulf countries. Last year, total remittances were almost $9 billion. Nepal relies on remittances more than just about any other country.
Many Nepalis held unglamorous jobs, such as security guards or maids. But the money was good, especially for people from a country where the average income is the equivalent of $3 a day.
Now many of them have been laid off. Some have been sent home, while others remain trapped in foreign countries, with no work and the specter of deportation hanging over them.
The pause in remittances has frightened many families. Several people who were interviewed said they had been forced to move to cheaper apartments and to take their children out of private schools and send them instead to government schools they considered inferior.
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OP-ED: understanding FDI in Bangladesh
Foreign direct investment (FDI) inflow, a major component of spurring growth in a developing economy like Bangladesh along with other development tools, usually plays a big role in transferring technology, creating employment opportunities, and transforming traditional skills into high-end technology.
Over the decades, with providing the world’s competitive facilities, namely lands, port infrastructures, cheaper labour, and natural resources, Bangladesh has been attracting such foreign investments. Approximately, the Bangladesh economy, whose GDP is about $347 billion, currently wants to attract more FDI to support its ongoing socio-economic developments.
Bangladesh’s steady economic growth by overcoming all obstacles is an example for many countries in the world. The country’s GDP growth has been over 7 percent for the last few years. Despite many hurdles and scarcity for lands and a few problems in legal infrastructure, its current overall growth is better than many LDC members and even developing countries.
The US is the single highest investor, which accounts for 20 percent of the total FDI inflow in Bangladesh. China, Japan, the UK, Saudi Arabia, and a few other countries are among the top ten investors.
The major FDI recipient sectors in Bangladesh are energy and power, textile, food, banking, leather, service, telecommunication, information and communication technology, trading, engineering, and a few others. Till today, energy and power are the highest recipient among all, which is ultimately helping the economy to grow and the government is getting revenue from the FDI financed companies located inside and outside of the economic zones.
Investments in 2018 were an all-time high, worth $2bn whereas it was a record low of -119 (minus) in 2005. The sharp rise in FDI in 2018 was caused by a big investment by a Japanese company and Chinese strategic investment in the Dhaka Stock Exchange (DSE), which was not a regular phenomenon.
Japan Tobacco invested $1.47bn to acquire United Dhaka Tobacco, a venture of Akij Group, while two Chinese stock exchanges invested Tk9.47 billion for buying a 25 percent stake of the Dhaka Stock Exchange. While China became the leading investor in the country with $1.03bn, the US, traditionally the top investor, dropped to fourth with only $174m in FDI for 2018.
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Philippines to be Asia’s worst economic performer
Already reeling from one of the worst Covid-19 outbreaks in Asia, the Philippines has been battered by multiple storms in recent weeks, displacing more than 300,000 residents and claiming the lives of 69 people.
The Philippines’ National Economic and Development Authority (NEDA) estimated 90 billion peso (US$1.8 billion) in losses, as five typhoons – Ulysses, Rolly, Quinta, Tonyo and Siony – devastated the most industrialized regions of the country.
The government estimates a 0.15 percentage point reduction in the country’s gross domestic product (GDP), further deepening an acute economic crisis. The Southeast Asian country’s GDP contracted 11.5 percent year on year in the third quarter, on the back of a 16.9 percent contraction in the previous quarter.
Even during the first quarter, when most experts anticipated positive growth, there was a 0.2 percent contraction, ending an 84-quarter growth streak.
Until recently one of the region’s most promising economies, the Philippines is now projected to suffer its deepest growth decline, according to the International Monetary Fund (IMF).
In its World Economic Outlook released last month, the IMF more than doubled its initial estimate of a 3.6 percent year-on-year contraction last June. Between 2019 and 2025, the Philippines is expected to suffer a 13 percent decline from its pre-pandemic forecast, the worst in the world followed by India, Argentina and Mexico.
This year, Philippine GDP will likely contract as much as 8.3 percent, the worst in the entire region, on the back of a collapse in remittances from overseas Filipino workers, domestic spending and a tepid fiscal and monetary response by the government.
The Philippine Statistics Authority earlier reported a massive second-quarter drop in key sectors, including in real estate and the ownership of dwellings (-29.7 percent), the repair of motor vehicles (-13.9 percent) and declines in wholesale and retail trade.
Other research and investment groups have been even more pessimistic. Noting a weak recovery in the third quarter, Fitch Solutions Country Risk & Industry Research projects a -9.6 percent contraction this year, from its earlier forecast of -9.1 percent.
“We at Fitch Solutions believe the Philippine economy will struggle to maintain its recovery momentum in Q4 2020 as domestic containment measures weigh on activity and demand,” Fitch Solutions said in a statement on November 12. “In 2021, base effects and supportive fiscal and monetary policy stances should drive a rebound, with the economy returning to pre-pandemic levels by mid-2022.”
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Russia’s economy plunges 4.7pc y/y in Oct after 3pc drop in Sept
Russia’s gross domestic product fell 4.7 percent year-on-year in October, after a 3 percent decline in September, the economy ministry said on Friday.
Economic contraction was mostly driven by a drop in output in the manufacturing and agriculture sectors, the ministry said, putting the January-October GDP contraction at 3.6 percent.
The ministry revised September’s GDP contraction figure from the 3.3 percent reported a month ago.
The Russian economy took a hit from a global drop in prices for oil, its key export, and the COVID-19 pandemic, while also feeling the burden of Russia-specific geopolitical risks and fears of more sanctions against Moscow.
“With virus restrictions tightening in many regions, the roll-out of the vaccine pushed back, and fiscal support unlikely to be stepped up, the economy will struggle to gain momentum over the coming months,” Capital Economics said in a note.
President Vladimir Putin said on Friday the economy was on track to fall 3.9 percent this year, which is more optimistic than the central bank’s forecast of an economic contraction of up to 5 percent.
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Xi’s aim to double China’s economy is a fantasy
Will China double the size of its economy by 2035, as President Xi Jinping proposed at a Communist party conference three weeks ago? To do so, the Chinese economy must grow annually by just over 4.7 percent on average for the next 15 years. It grew by 6.1 percent last year, and by 6.7 percent annually over the previous five years.
In that context, 4.7 percent a year seems quite manageable. But while the calculations may seem straightforward, there are economic and demographic constraints that are not.
Every country that followed the high-savings, investment-led growth model that China adopted in the early 1990s — such as Japan in the 1970s and 1980s, or Brazil in the decade before — has gone through three distinct stages. The first stage, characterised by heavy investment in badly-needed infrastructure, delivered many years of rapid but unbalanced growth. In that stage, debt grew in line with the economy because when debt mostly funds productive investment, gross domestic product grows faster than debt.
In the second stage, as each country sought to rebalance demand away from investment, typically with little success, growth remained fairly high, although now driven increasingly by non-productive investment. When this happens, total debt in the economy must grow faster than GDP. So the debt burden rose.
Finally in the third stage, the country either reached its debt capacity limits or a worried government took steps to prevent debt from rising further. Either way, the economy was forced finally to rebalance away from investment and towards consumption amid far slower, sometimes even negative, growth.
China today is clearly in the second stage. Between 1980 and 2010, Chinese GDP doubled four times, but debt levels were low and rose slowly. However, between 2010 and 2020 when GDP doubled again, China did so by tripling its total debt burden to $43tn, so that it now stands, officially, at over 280 percent of GDP.
Assume conservatively that the relationship between debt and growth doesn’t change, and China’s debt-to-GDP ratio will have to rise to over 400 percent by 2035 if it is to double GDP again. This is a level that would be unprecedented in history. Everywhere else, growth collapsed long before debts reached levels close to this.
China can in principle reduce its dependence on debt by shifting domestic demand from investment to consumption, as Beijing has long proposed. Yet this requires that the household income share of GDP rise from roughly 50 percent to at least 70 percent.
Beijing has long wanted to do this but with limited success, despite a decade of trying. There is still little to suggest the party is willing to tackle the institutional implications of the large wealth transfer from local governments and elites to households this entails.
There is also a demographic problem. From the late 1970s, China benefited from a rapidly rising working-age population, but this reversed around a decade ago. In fact, over the next 15 years, while China’s population will grow by an estimated 1.5 percent, its working population will decline by an astonishing 6.8 percent, and will continue to decline for the rest of the century. To put it in context, while today there are 4.7 Chinese of working age for every equivalent American, by the end of the century there will be only 2.4.
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No matter what q3 gdp readings show, contrast in Indian equities and economy to continue
Driven by foreign money, India equity indices continue to soar higher. A big sentiment boost has come from the news of successful vaccine trials with higher effectiveness. At the same time, the risk of another wave of infections is still not out of the way. In the West, Covid cases are rising; in India, some restrictions are being imposed regionally.
But the market, which seems to be confident of a faster economic revival, has brushed off this concern for now. Key Indian equity benchmark index Nifty, which is currently at levels of 12859, may soon touch the psychological mark of 13000 if the ongoing momentum continues.
Speaking of economic recovery, India’s third quarter gross domestic product data will be published on 27 November. Many economists are of the view that the contraction in business activity has moderated significantly in the September quarter. Bloomberg’s consensus Q3 India GDP forecast stands at -8.6 percent.
“India’s GDP slump likely moderated sharply to -9 percent year-over-year in Q3, from -24 percent in Q2,” Miguel Chanco, senior Asia economist at Pantheon Macroeconomics said in a note on 20 November.
“The brisk recovery in industrial production over the last few months is probably the main reason behind the more optimistic Q3 forecasts. Crucially, the demand-side indicators for the third quarter were weaker. Passenger car sales nearly quadrupled from the Q2 nadir, on our adjustment, but this only took sales to 88 percent of last year’s Q3 level. Now that car sales are back at their long-running downtrend, it is tough to see a continuation of the recent momentum. Most of the improvement is likely to come from investment, partly because base effects are more favourable, as it was hit harder in Q2,” he added.
Shilan Shah, senior India economist at Capital Economics Ltd strikes a similar note of caution. “Encouraging improvements since then – particularly towards the end of Q3 – mean that output is likely to have fallen by a much smaller 8.0 percent y-o-y last quarter. Looking ahead, an effective and widely-distributed vaccine could be an early way out and result in a faster economic recovery next year than we are currently forecasting. But plenty of headwinds remain. Even widespread vaccination would not restore India to economic health, as tepid fiscal support and a beleaguered banking sector will weigh on economic growth long after the virus is brought under control,” he said in a note on 20 November.
Analysts say, post the recent rally positives such as decent September quarter earnings and vaccine-related developments, are all factored-in. They feel, given the lack of major near-term upside triggers and stretched valuations, Indian equities should consolidate at current levels. They also warn of increased volatility as the November future and options series expires this week.
On the sectoral front, Bank Nifty is likely to be in focus. Last week, the Reserve Bank of India (RBI) imposed a moratorium on the struggling Lakshmi Vilas Bank and forced a merger with the local unit of Singapore’s largest lender DBS Bank.
Secondly, the RBI panel on Friday recommended giving banking licences to large industrial houses. This potentially paves way for the Aditya Birla group, the Tata group and Reliance Industries Ltd to apply for banking licences.
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Neglect of migrant workers could hurt Malaysia’s economic recovery
Researchers say Malaysia has done little to protect low-wage migrant workers from the effects of the coronavirus pandemic — which could hurt an economy that’s struggling to recover.
Low-wage and low-skilled migrant workers around the world have been among the most vulnerable as businesses cut wages and jobs to cope with the pandemic’s economic shock. Their predicament often is exacerbated by a lack of assistance from their host countries, as governments prioritize help for their own citizens.
In Malaysia, thousands of migrant workers have reportedly lost their jobs. The International Labor Organization, the United Nations’ labor agency, said in a report that there were cases of migrant workers being unfairly terminated or not getting paid when Malaysia’s nationwide coronavirus lockdown was first imposed in March.
Meanwhile, more than 1,000 undocumented or illegal migrants — who often seek work with unregistered businesses — were arrested in May when authorities conducted raids during the lockdown, Reuters reported. Those workers were placed in overcrowded detention centers that later became hotspots for the spread of Covid-19, according to local media reports.
The Malaysian government has provided limited help to the workers, with a senior minister arguing in April that the workers are the responsibility of their respective embassies, according to Jarud Romadan, a researcher at Khazanah Research Institute. The not-for-profit institute is sponsored by Malaysia’s sovereign wealth fund, Khazanah Nasional.
Government response has been confusing at times, Jarud said at an online seminar organized by the London School of Economics and Political Science’s Saw Swee Hock Southeast Asia Centre in mid-October.
He pointed out that authorities this year extended free Covid-19 testing and treatment to migrants regardless of their immigration status, and told undocumented migrants that they wouldn’t face any legal repercussions. But that amnesty was reversed, and authorities proceeded with the immigration raids, he said.
Malaysia’s Ministry of Human Resources did not respond to CNBC’s request for comment.
The ILO similarly pointed out in a report that most Malaysian government support measures don’t cover migrant workers. Trade unions and other organizations have stepped in to help the migrant workers, including by distributing food and providing shelter to them, according to the ILO.
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Malaysia’s economy to see gradual recovery; Perikatan prepared for snap polls and will win
he country’s economic recovery in the Covid-era is likely to be gradual in the shape of the letter “U” rather than bounce back sharply like the letter “V”, Senior Minister Datuk Seri Azmin Ali told Bloomberg TV in an interview.
He said the resurgence of Covid-19 cases nationwide have prompted public officials to revise their initial economic forecast for 2021.
Putrajaya had earlier predicted a V-shaped recovery, estimating the economy to pick up quickly by the first half of 2021 on optimism that the Covid-19 pandemic could be contained.
Azmin also told Bloomberg TV that the government is forced to reintroduce movement restrictions to lower the infection rate that had seen four digit cases daily.
He admitted that doing so could hurt businesses and slow growth.
“It looks like that is the situation now but the pace is still slow,” he said when asked about the country’s recovery prospects.
“The best approach is to adopt MCO to contain the virus, but that will cost the economy,” Azmin said, referring to the movement control order.
The MCO that started in March and the subsequent phases of restrictions has battered Malaysia’s economy, forcing many businesses ― especially small and medium enterprises ― into government financial dependency for their survival.
The government estimated the lockdown to have cost a fourth of Malaysia’s GDP.
The national GDP contracted at a slower pace in the third quarter, rebounding from a record low first half after restrictions were eased back from May.
Government officials, buoyed by positive data then, suggested “firm support” for revival.
But a recent surge in cases could upend the outlook. New infections in the nation have hovered above 1,000 for five straight days through Tuesday before climbing to 1,290 yesterday.
Azmin said support for Budget 2021 is crucial to facilitate recovery.
“There’s no reason for the MPs to not support the budget and to defeat it when the budget is meant for the people and economic activities in Malaysia.
“The finance minister has taken all views into consideration,” the international trade and industry minister said.
Prime Minister Tan Sri Muhyiddin Yassin is facing his toughest political test since taking office in March when parliamentarians vote on his maiden Budget next week.
Backbenchers and Opposition MPs have indicated that they may not support the Budget, which is being seen as a yardstick of support for Muhyiddin as PM.
Should it fail to be passed, a general election might be called.
Azmin told Bloomberg TV said the ruling Perikatan Nasional coalition is prepared for that possibility and confident of victory.
“With our track record for the last eight months, we will secure a bigger majority in the next general election,” he said.