COVID-19 may hurt Singapore most in South-east Asia
Across the region, governments are attempting to manage the impact of the COVID-19 outbreak
South-east Asia is uniquely exposed to the economic risks associated with COVID-19 because the region’s supply chains, labour flows and tourism industries are heavily reliant on China, where the virus originated and has had the greatest impact. Meanwhile, the threat to public health from the spread of the virus brings political risks for the region’s governments.
What next
Wealthier states in South-east Asia will increasingly resort to costly fiscal stimulus to mitigate the economic effects of COVID-19. However, the region’s tourism industries will take a significant hit. The political risks associated with the virus are especially high for Singapore’s government, given the scale of the outbreak in that country and the imminence of an election there.
Subsidiary Impacts
- Countries with weak healthcare systems, such as Myanmar and Laos, would struggle to deal with severe COVID-19 outbreaks.
- South-east Asian governments will put in place more expansive travel bans and stricter quarantine measures as the virus spreads.
- Across the region, mitigation packages put together by governments in response to COVID-19 will drive deficit spending this year.
Analysis
Singapore has had 108 confirmed cases of COVID-19. This is the most of any South-east Asian country.
South-east Asia is yet to experience the level of cases found in East Asia (see EAST ASIA: Coronavirus makes for precarious politics - February 18, 2020).
Travel bans or advisories with respect to China, other parts of East Asia and Singapore are in place across the region.
GDP growth
As supply chains are curtailed and labour flows are interrupted, GDP growth across South-east Asia will slow.
Supply chains curtailed
Since supply chains in South-east Asia and China are highly integrated, the closure of Chinese factories and border crossings is hurting South-east Asian economies.
Exports of high-value supply-chain components from South-east Asia to China, and vice versa, are down. Reduced industrial production in China has lowered demand for components from South-east Asia such as electronics. Manufacturers of computers and electrical equipment in countries such as Singapore and Vietnam have experienced production delays because Chinese factories have been unable to fill orders.
Problems with supply chains have also affected lower-value exports for which China is the supplier of raw materials. The textiles industry in Vietnam has lost substantial cloth and thread feedstock from Chinese sources, forcing factories to source feedstock from suppliers much further away in Asia.
Labour flows interrupted
Concerns over COVID-19 have limited the movement of labour in the region.
The outbreak of the virus broadly coincided with the Chinese Spring Festival, when many Chinese nationals working in South-east Asian countries returned to China or were travelling elsewhere. Travel restrictions subsequently imposed by certain South-east Asian countries have prevented some Chinese employees from returning to their jobs.
Singapore last month implemented measures forcing labourers holding work passes to seek approval for re-entry if they had travelled to China.
In Indonesia, the coordinating minister for maritime and investment affairs has said expansion of smelter capacity is being delayed because Chinese engineers involved in these projects cannot return to Indonesia, due to flight bans.
Travel limitations have also affected flows of South-east Asian labour to East Asia.
The Philippine government has put in place a 'Beneficiaries Availment Program', which has provided 1.5 million dollars of assistance to more than 8,000 overseas workers affected by travel bans in China and Taiwan.
Stimulus measures
Prior to the COVID-19 outbreak, governments in Singapore and Thailand were anticipating stronger economic growth after periods of economic weakness. However, Singapore's Ministry of Trade and Industry now forecasts GDP growth of between minus 0.5% and 1.5% for 2020, having earlier forecast between 0.5% and 2.5%. In Thailand, the National Economic and Social Development Council has lowered its growth estimate for this year to 1.5-2.5% from 2.7-3.7%.
The COVID-19 outbreak could make Singapore's economy contract this year
Indonesia's finance minister has warned that the effects of the outbreak could reduce the country's GDP growth by 0.3-0.6 percentage points.
Vietnam's Ministry of Planning and Investment (MPI) has predicted that the country's GDP growth will fall to 6% in 2020 from 7% in 2019, partly due to economic pressures associated with COVID-19.
While several governments in the region are already unveiling fiscal stimulus packages, central banks will likely come under pressure to continue cutting interest rates.
Since the start of this year, central banks that have already cut rates include the:
- Central Bank of Malaysia, by 50 basis points (bp) to 2.50%;
- Bank Indonesia, by 25 bp to 4.75%;
- Central Bank of the Philippines, by 25 bp to 3.75%; and
- Bank of Thailand, by 25 bp to 1.00%.
Tourism and aviation
Government attempts to stimulate domestic tourism and air travel will only recover a fraction of the tourism revenue lost due to fewer Chinese people visiting the region (see INT: Coronavirus will hit tourism-driven economies - February 11, 2020).
The tourism industries in Vietnam and Thailand are among the most reliant in South-east Asia on Chinese visitors. Vietnam's MPI has estimated that the COVID-19 outbreak could directly cost the country's tourism sector roughly 5 billion dollars. The Tourism Authority of Thailand is anticipating a loss of over 15 billion dollars in tourism revenue.
Thailand's government will this month announce tax breaks and financial assistance for tourism-related companies, including hotels and tour agencies.
Meanwhile, South-east Asian airlines have announced flight cancellations across South-east and East Asia, due to falling demand. This will hit several national carriers (see SOUTH-EAST ASIA: Aviation faces growing pains - March 12, 2019).
80%
Proportion of Singapore-China flights cancelled since the COVID-19 outbreak beganThe financial impact of COVID-19 on the region's aviation industries will be greatest in Singapore. Some 80% of flights to China from Singapore have been cancelled since the outbreak began. Singapore Airlines (SIA) recently announced the cancellation of more than 700 non-China flights that were due to be operated by SIA and its subsidiary SilkAir over the next three months.
Singapore's proposed budget, presented by the government last month, includes a recovery package specifically aimed at the country's aviation sector.
The Indonesian government is also planning direct subsidies and incentives for its domestic airlines, including the flag carrier Garuda Indonesia, which is in financial difficulty. The incentives include lower airport and service fees and lower fuel prices.
Political risk for governments
Governments across the region will be judged by their populations on their ability to manage the public health emergency.
Administrations that are already under pressure for other reasons are at greater risk of being judged badly.
Thailand
The Thai government is facing increased criticism over its efforts to undermine the political opposition (see THAILAND: Support for government will be strained - February 24, 2020).
The Infectious Disease Division of the Disease Control Department has declared an infectious disease emergency to help enforce state orders related to the outbreak.
Malaysia
Malaysia's strategies for treating and containing COVID-19 have received international praise.
In recent days, though, a new government has come to power controversially. The Ministry of Health is currently lacking leadership, as a new cabinet is yet to be appointed.
Singapore
Singapore's government has put in place some 900 Public Health Preparedness Clinics, designed to provide rapid care to individuals with respiratory symptoms. It has used mandatory home-quarantine orders to contain further infections.
The ruling People's Action Party (PAP) has started the process for holding a general election (see SINGAPORE: Lee will call early poll despite risks - September 9, 2019).
Although there is virtually no chance of the PAP being unseated, any signs of poor handling of the COVID-19 crisis could increase support for the opposition.
