Asia growth outlook still weak despite massive support measures

SINGAPORE (ICIS)–Asia’s economic growth outlook remains clouded despite injection of massive fiscal stimulus packages to counter the crippling impact of the coronavirus pandemic.

The pandemic is choking the global economy: unemployment is spiking, manufacturing activity has ground to a halt, some businesses are facing closures while governments will be incurring huge budget deficits to fund the massive stimulus packages.

The World Bank in a report on Tuesday said that growth in east Asia and the Pacific is expected to slow to 0.5% in 2020 – the lowest rates since 1976 – tracking the projected 5.2% contraction in the global economy.

To mitigate the impact of the coronavirus crisis, all major regional economies have implemented large macroeconomic policy packages to support and revive business and commerce, and generate employment.

In China, the People’s Bank of China (PBoC) has provided substantial liquidity support, cut policy rates, and lowered reserve requirements to stem market sell-offs and support businesses.

Key fiscal policy measures in China included emergency health spending, tax breaks, direct transfers to vulnerable households, and deferrals and special local government bond issuances to boost investment, totaling 5.4% of GDP.

Other regional economies have also cut monetary policy rates, provided liquidity and credit facilities, and embarked on various asset purchase programs.

Japan in late may approved a new $1.1tr stimulus package, which brings its total spending to combat the coronavirus to about $2.18tr, or about 40% of GDP.

South Korea on 3 June revealed a won (W) 35.3tr supplementary budget to raise its overall stimulus package to W270tr.

The South Korean government has now put in place support measures equal to around 14% of its GDP.

India in mid-May announced a $270bn economic package, which is close to 10% of its GDP.

The package is aimed at making India more self-sufficient via boosting local manufacturing and supply chains.

Malaysia and Thailand have both implemented extraordinary economic support packages equivalent to around 17% and 13% of GDP respectively, which included direct fiscal stimulus packages around 6% of GDP.

Indonesia and the Philippines have announced sizable fiscal stimulus packages ranging around 3-5% of GDP.

Despite the slew of measures to support their economies, economic conditions in Asia have deteriorated going into the second half of 2020, reflecting lockdowns and external spillovers.

“Key risks include a longer-than-expected duration of the pandemic, a prolonged period of heightened financial stress, and a sharper- and longer-than-expected contraction in global trade compounded by re-escalating trade tensions,” the World Bank said in its Global Economic Prospects report.

The regional outlook is dependent on major countries in the region avoiding a second wave of outbreaks, it said.

“The outlook is also predicated on the assumption that sizable fiscal and monetary policy support measures implemented by major economies are successful in averting a prolonged recession and financial crises,” the World Bank said.

Focus article and interactive by Nurluqman Suratman