APAC Matters: A Deeper Drop

Mar. 26, 2020 5:47 PM ET
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*June 30, 2019


  • Ramifications from the spread of the coronavirus are continuing to shake global financial markets.
  • In the West, case numbers have risen sharply. While numbers appear stable in China, cases have continued to rise slowly in the rest of APAC.
  • But with strict containment measures already in place in most countries, overall case numbers remain low.

By Robert Gilhooly, Senior Emerging Markets Research Economist

A bigger-than-expected shock for the Chinese economy

The coronavirus shock for China now appears much larger than initially thought. The falls in industrial production, fixed asset investment and retail sales volumes were much steeper than expected (Chart 1). The first and last of these are particularly close to the building blocks of GDP. As such, they have inspired major downgrades of Chinese first-quarter growth.

Chart 1 – monthly data fell much more than expected

Source: Refinitiv, Haver, ASIRI

Our nowcasts suggest a contraction of 7% quarter-on-quarter (q/q) for China. But a sectoral model suggests that a contraction of 10% q/q is plausible. The quarter-on-quarter tightening could even be as much as 14%, or around 60% annualised. Much depends on the assumptions we and others make for the recovery in activity in March. We will be tracking this using a combination of nowcasts and our revamped China Activity Indicator.

The shock to China is one of the factors that have led us to carry out a major reassessment of the likely effects for advanced economies. If China provides a good guide to the shocks facing the US and the Eurozone, the recovery in Chinese manufacturing could be much slower. It would be negatively influenced by falling demand and global supply chains coming under further pressure. As this effect becomes visible, it is likely to spur further easing by the authorities.

… but the shock is still yet to fully surface in other countries’ economic data

Economic data across APAC (ex. China) continues to defy gravity, but we expect that it is only a matter of time before it comes crashing down.

Asian trade and industry has held up better than expected: in February, Japanese exports fell only 2.4% compared to the same time last year. There were also signs that February shipments to the rest of Asia ticked up. In Taiwan, industrial production rose 5% year-on-year, with gains in technology and non-technology sectors. Thailand’s February merchandise exports fell 4.7% compared to the same month last year and 1.7% from January, and Korean 20-day exports rose 10% year-on-year in March. Nevertheless, survey measures (such as new export orders) suggest that a severe disruption is inevitable (Chart 2).

Chart 2 – export orders point to a sharp decline in activity going forward

Source: Haver

India, meanwhile, has entered ‘total lockdown’ after it had a spike in coronavirus case numbers. The measures will no doubt be reflected in the data in the coming months. Forecasts for India’s 2020 economic growth will be further downgraded to sub 3.5%. We expect policy measures to be announced soon. They are likely to be along the lines of income support for migrant and low-paid workers, as well as tax breaks and debt-repayment moratoriums for companies.

Policymakers in APAC continue to announce measures to counteract the shock

While more aggressive measures are being put in place in the US and the Eurozone, policy in APAC is generally becoming more supportive.

Most central banks in advanced Asia have now cut interest rates to their lower bounds, while temporary dollar swap lines have been established between the Federal Reserve and the Reserve Bank of Australia, Bank of Korea, Reserve Bank of New Zealand, and the Monetary Authority of Singapore.

In emerging Asia, central banks have been more cautious, largely reflecting concerns about capital outflows and currency depreciation. The Philippines pressed ahead with a 50 basis-point (BP) cut, while Thailand and Malaysia eased by only 25bp.

The People’s Bank of China declined to ease further. But as events in the US and the Eurozone begin to drag on Chinese manufacturing, we think that policy will likely move to a somewhat looser stance. In particular, the duration of the shock greatly increases risks. It may be this that swings the balance between growth and medium-term financial stability risks.


The value of investments, and the income from them, can go down as well as up and you may get back less than the amount invested.

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