East Asia Watch

Covid forecast for Asia - cloudy with slivers of light

The coronavirus continues to bite into the region's economies and is likely to leave its mark years into the future. But it also offers opportunities to review unsustainable practices.

Last Friday, the Japanese government announced that the country would begin allowing events with up to 5,000 people, including sporting events and musical concerts.

This was despite a daily record high of 243 new Covid-19 cases reported on the same day in Tokyo, six weeks after a state of emergency - imposed in April to contain the pandemic - was lifted.

The country's leaders, reluctant to reimpose restrictions that had battered its economy, insisted that the rise in cases was something to be expected with the easing of restrictions.

Japan and several other countries in the region, from India to the Philippines to Australia, are experiencing spikes in infections after loosening Covid-19 curbs to revive their ravaged economies.

While not all are taking bold steps like Japan, most are reluctant to reimpose the strong measures they had taken earlier to contain the coronavirus.

This is because of the enormous economic costs the measures have wrought - huge numbers of jobs lost, many of which may not return, companies' shutters permanently down, and disadvantaged families pushed further into poverty.

TARGETED SHUTDOWNS

Instead of comprehensive lockdowns, they are considering targeted shutdowns of districts with Covid-19 clusters, although Australia has taken the more drastic step of locking down its second most populous city, Melbourne, for six weeks from last Thursday.

In the Philippines, where there were 1,387 new cases on Saturday, the ninth straight day of numbers above 1,000, and a total of more than 54,000 cases, the government has baulked at imposing the same sweeping lockdown that it had between March and last month.

"We really have no alternative because our economy has been pushed to the edge. All of us need to start working," Mr Harry Roque, spokesman for President Rodrigo Duterte, told reporters last week.

Instead, local governments were given the responsibility of slowing down the spread of the coronavirus through measures such as shutting down districts, communities or individual buildings found with cases. Private firms and individuals were also expected to play their part.

 
 
 
 

India, which has seen cases shoot up to about 20,000 daily from a few hundreds after ending its nationwide shutdown of economic activity in May, is also leaving it to local governments to take measures as they see fit.

This approach is a gamble. By opting for less drastic measures, governments risk protracted epidemics that will in turn dampen economic recovery. This will be particularly so if the economic reopening leads to substantial surges that scare people into retreating into the safety of home, killing off any green shoots of consumer demand.

Some analysts are pessimistic. Professor Ayhan Kose, director of the World Bank's Prospects Group, warns of the possibility of a deeper downturn brought on by a protracted pandemic and a financial crisis amid high debt levels and re-escalation of trade tensions.

Recovery will be slow because of the lingering effects of the pandemic on households and businesses, as well as the fragmentation of global supply chains.

GRIM NUMBERS, GRIM PROSPECTS

A survey last month by the Japan Centre for Economic Research, as reported in Nikkei Asian Review, showed just how much the efforts by several states in the region to slow down the Covid-19 pandemic cost them economically.

The survey of five Asean countries - Indonesia, Malaysia, the Philippines, Singapore and Thailand - as well as India projected a drastic shrinkage of their economies in the second quarter and negative growth for the full year.

The five Asean states together were projected to shrink by 7.8 per cent in the second quarter (April to June), a steep drop of 9.7 points against a growth forecast of 1.9 per cent in an earlier survey in March, when the pandemic was just beginning to inflict pain on the region.


ST ILLUSTRATION: MIEL

The forecast contractions for Malaysia, Singapore and Thailand were in double digits - 11.3 per cent, 11.8 per cent and 11.6 per cent respectively. India was projected to be the worst hit in the second quarter, with a 20.6 per cent contraction.

For this year, the economic growth of every country surveyed is expected to be in negative territory, from Indonesia's minus 0.3 per cent against last year's 5 per cent to Thailand's minus 6.7 per cent against last year's 2.4 per cent.

Overall, the five Asean states are projected to contract by 3.3 per cent against a growth of 3.9 per cent last year.

Things are expected to look up next year, however, with all countries in the survey projected to register fairly strong rebounds of between 4.2 per cent (Thailand) and 6.9 per cent (India), and in 2022 of between 2.4 per cent (Singapore) and 6.5 per cent (India).

But these optimistic projections come with the caveat that these countries are able to effectively contain secondary waves of the coronavirus.

Prof Kose at his online public lecture, organised by the East Asian Institute earlier this month, noted too that East Asia and the Pacific (excluding China) could grow at a robust rate of about 5 per cent next year. He added, however, that this recovery will not be able to compensate for the losses of this year.

And even with speedy containment of the pandemic, which will help speed up economic recovery, the global economic contraction would still be two times worse than the global financial crisis of 2008-2009.

In the medium term, he warned, there is a risk of slower recovery and weaker growth, in part because of risk-averse households and firms.

Further down the road, what worries Prof Kose is the damage to potential growth.

"After experiencing such a deep downturn, it is unlikely we will see the global economy going back to the pre-Covid trend in the near future," he warned.

This is because during deep recessions, there is a sharp increase in uncertainty and collapse in confidence that leads to a collapse in investment, which impacts potential growth and output. There is usually a 6 per cent decline in potential output four years after the end of a recession.

In the case of major health crises such as those of the severe acute respiratory syndrome, Middle East respiratory syndrome, Ebola and Zika, there were significant and persistent losses in terms of investment and labour productivity, with the decline in investment over five years at about 12 per cent, and in labour productivity at more than 6 per cent.

Worse, apart from the huge job losses as a result of a slowdown in investment, there is the longer-term impact on human capital arising from disrupted learning and school shutdowns.

While schools could turn to online teaching, younger students don't learn well remotely, Prof Kose pointed out.

RAYS OF HOPE

Amid the gloom, however, there are some bright spots.

The tourism trade in the region may have been devastated by the pandemic, costing those working in the industry their jobs and businesses.

But the pause in tourism has given countries time to look at how they want to rebuild the industry in a way that benefits their economies but also protects their ecosystems.

This is as over-tourism in the region has damaged its historical sites and polluted its natural environments, including its beaches and forests.

Already, some tourism industry players are making their own plans for reopening that leverage how the pandemic has made people more aware of the environment, health and hygiene, by promoting farm-to-table tourism that emphasises fresh, locally produced food and the offer of the farm experience.

The website Eco-Business.com this month published an article on how the pandemic is accelerating the trend of farm-to-table tourism, in which hotels and restaurants work with local farmers or grow produce on their property to provide guests with locally produced ingredients while supporting nearby agricultural communities.

Another silver lining in the pandemic gloom is the general adoption of digital technology in many facets of life - such as in education or business - and emerging economies are doing so faster than advanced ones, because of their more flexible structures.

Countries can also learn from one another what approaches work and what don't.

Sweden, for example, is a cautionary tale of what not to do - it had allowed life to carry on unhindered even as the pandemic hit, in order to minimise economic damage.

However, not only have more people died than in neighbouring countries that had imposed lockdowns, but its economy has also fared little better than its neighbours'.

On the other hand, a recent session hosted by the World Bank, involving policymakers from countries including Colombia, Ghana and Vietnam, as well as Italy's Veneto region, threw up approaches towards mitigating the public health crisis and preparing for economic revival that could be helpful to other countries.

Among the lessons is that rapid and decisive action is critical - successful responses have all involved early action and extensive testing, contact tracing and physically isolating unwell patients.

Another is that leadership must build trust and communicate honestly, and this involves being open and working with partners and communities to help people respond to the pandemic and take necessary precautions.

Some useful on-the-ground practices include Veneto's innovative use of artificial intelligence to help companies screen employees to gauge their risk profile, so that they can test those at higher risk more frequently.

What is clear from the experience of countries so far is that public health and economic recovery go hand in hand.

 

Through the sharing of experience and knowledge of what works, countries can be better prepared to deal with new waves of the disease so that these have as little health and economic impact as possible.

Cooperation across borders is key, and more of this must happen.

It is going to be a long haul, and as Dr Takeshi Kasai, the World Health Organisation regional director for the Western Pacific, said recently, it is important to think long term and find a way to live with the virus.

 
A version of this article appeared in the print edition of The Straits Times on July 14, 2020, with the headline 'Covid forecast for Asia - cloudy with slivers of light'. Print Edition | Subscribe