SINGAPORE (May 12): Although the Singapore government has begun easing some restrictions, Morgan Stanley cautions that the Republic could be among the last to recover to pre-Covid-19 GDP levels.
While China will arguably lead the pack with a recovery by 3Q2020, economist Deyi Tan says export-oriented economies such as Singapore, Thailand and Malaysia are likely to take until 1Q2021 to recover.
“This group is some of the most export-oriented in Asia ex-Japan (AxJ). Some have also implemented lockdowns, leading to a double hit on exports and domestic demand. We think this group will likely take longer to recover, possibly by 1Q21. Growth risks are skewed to downside,” says Tan.
“First-in-first-out of Covid-19, a domestic-demand oriented economy and policy easing underway means [China] will likely return to pre-Covid-19 levels earliest in AxJ by 3Q20,” she adds.
For governments, businesses and individuals across the globe, the recovery can’t come soon enough. But Morgan Stanley’s advice to economies is the same for marathoners: Slow and steady wins the race.
As different parts of AxJ are currently sitting on different parts of the Covid-19 curve, economists are predicting a gradual recovery as opposed to a V-shaped recovery.
“In some cases, policymakers have already relaxed containment measures and moved towards softer social distancing. For others, lockdown/emergency measures have been extended, but with a more nuanced approach adopted to differentiate between less/more affected areas,” says Tan.
“As containment measures are gradually unwound, we think the focus will increasingly shift to what type of growth recovery we will see and which economy in AxJ will emerge first in the recovery path,” she adds.
The way economists see it, the pace of recovery for the region depends on three factors: the extent of impact on sectors such as trade, tourism and commodities; countries’ institutional responses to manage domestic Covid-19 situation so far, as well as the balance fiscal policy “firepower” countries have in store should the slowdown persist.
Tan observes that Singapore is not just one of the countries that has the most room in terms of fiscal policy response, but is also an example of “effective” results in containing the virus. However, its export-oriented economy puts it in a vulnerable position.
“Swings in trade tend to be high-beta relative to global nominal GDP and will lead to greater growth volatility for the more export-oriented economies, particularly the smaller, open ones,” says Tan.
“Economies such as Hong Kong and Singapore have some of the more aggressive fiscal policy responses in AxJ but this will likely be partly offset by the low fiscal multiplier amid the uncertain environment and the sizable drag from external demand,” she adds.
Tan says the war ahead is two-pronged: Countries need to allow economic activities to resume, while simultaneously mitigating the risks of a resurgence in virus cases.
“[This] means a new normal of social distancing will likely remain in place until we have a vaccine that can be mass produced, which at this stage seems unlikely until spring 2021 at the earliest,” she says. “This will likely constrain the pace of recovery.”
