COVID-19 is taking away our loved ones, radically changing life as we know it, and causing the global economy to come to a standstill. The catastrophic economic repercussions of COVID-19 caused The International Monetary Fund (IMF) to release a revised economic outlook for 2020.
The IMF forecast the global economy will fall by 3% (April), which is much worse than the GFC. In Contrast, this prediction to the IMF expecting the global economy to grow by 3% in 2020 (January).
Upon reading the IMF’s World Economic Outlook report on the 14th of April, we have decided to provide our readers with an in-depth analysis of the impact of COVID-19 on Major Asia pacific economies. These economies include Australia, Japan, China, Singapore, and South Korea.
- The IMF’s estimates and projections are based on statistical information available through 7/4/2020
- This estimation is built on the assumption that COVID-19 will fade in the second half of 2020 (July onwards). Thus, if the pandemic lasts longer, expect a more severe impact.
Australia’s economy is likely to suffer the most damage in the Asia-Pacific region. Because services sectors like travel, tourism, and education are the blood that keeps the Australian heart pumping. COVID-19 is wreaking havoc on the above industries.
Consequently, the Australian government is dishing out $500 million in loans to trade-exposed businesses. Allowing eligible companies to receive credits between $250,000 and $50 million. Based on the declining property market, the banking crisis, and the above beaten-down industries, the IMF forecasts the Australian economy to shrink by -6.7%.
However, the IMF also predicts a sharp rebound of 6.1%, given all assumptions are correct (critics argue this is extremely optimistic). Despite the optimism, Australia is a country that relies on other economies, namely America and China, to perform well. Especially as China accounts for 38% of Australian exports. Australia’s mining industry continues to show resilience throughout the volatility. If miners can capitalise on a low Australian dollar and cheap fuel prices, we could see one part of the economy realign itself on the tracks.
Performance of Australia’s Market Index ASX 200 (returns from the 1st week of COVID-19 cases reported 25/1/2020):
- Average Weekly Returns: -1.735%
- Average Weekly Volatility: 8.242%
China’s recovery from the virus resulted in the IMF predicting the Asian giant to grow by 1.2% in 2020. According to Xinhua News, about 98.7% of China’s manufacturing enterprises have returned to work. Also, China’s Purchasing Managers Index (a measure used to show the direction of the economic trend in manufacturing) is up to 52.0% in March, as compared to 35.7% in February.
The Chinese economy might be returning to ‘business as usual’, however, the challenge for China is bringing back the pre-COVID-19 demand. An endless number of countries are still in lockdown and incapable of importing Chinese goods into their economy. To add insult to injury, some nations are looking to move their businesses operations out of China. For example, the Japanese government paid $3 billion to help Japanese companies move their factories out of China. With Japan and America leading the China-exit trend, many countries are expected to follow suit and adopt a more nationalistic supply chain approach.
Thus, without a doubt, China’s manufacturing sector is improving. However, the recovery of consumer spending is lagging behind. Possibly creating an oversupply of goods. In turn, the IMF predicts a U-shape, instead of V-shape, recovery. Overall, it seems China must increase domestic demand to mitigate the effects of the crippling world economy.
Performance of China’s market index, SSE Composite Index (returns from what is known to be the first case of COVID-19 in China 31/12/2019):
- Average Weekly Returns: -0.471%
- Average Weekly Volatility: 3.128%
The IMF projects Japan’s economy to contract by 5.2% in 2020.
Japan is doing it incredibly tough in contrast to its Asian peers. Because Japan’s economy was already struggling before the pandemic.
Japan’s exports were already falling due to lower demands from China, and the government increasing sales tax back in October 2019. The rise in sales tax has caused the annualised GDP to shrink to 7.1% from October to December. Consequently, Japan’s consumer sentiment was sent spiraling down and is showing no signs of recovery in the imminent future.
Moreover, the postponement of the Tokyo 2020 Olympics dealt another blow to the already suffering economy. Also, the virus is causing Japan’s large automotive industry to take some heavy-hits at the moment.
In light of all the suffering, Nintendo generated a capital gain for its investors. Nintendo reached a new 52 week high of USD 55.10 on the 17/4/2020. The strong demand for gaming consoles, such as the Nintendo Switch, is a driving factor behind the share price growth.
Performance of Japan’s Market Index, Nikkei 225 (returns from the week of 1st case of COVID-19 reported 16/1/2020):
- Average Weekly Returns: -1.047%
- Average Weekly Volatility: 7.991%
South Korea achieved the highest growth rate in the OPEC Nations as well as achieving the lowest change when compared to the IMF’s January prediction. The IMF predicts Korea’s economic growth to shrink by 1.2% in 2020.
South Korea minimised negative economic impacts by taking extensive action in containing the virus. Most importantly, the nation was less reliant on lockdown measures. Allowing many businesses to function normally. Also, South Korea is forecasted to suffer less than its peers, as they rely less on tourism, travel, and hospitality, which are being beaten down right now.
South Korea’s decline in GDP is mainly due to the decrease in foreign demand for its exports. Foreign demand, which accounts for 50% of South Korea’s GDP, is expected to deteriorate as the global consumer sentiment falls even further. However, the global demand for exports in Korean food and beverages is increasing.
Performance of Korea’s Market Index, KOSPI (returns from the week of 1st case of COVID-19 reported 20/1/2020):
- Average Weekly returns: -0.984%
- Average Weekly Volatility: 7.370%
The IMF predicts Singapore’s economy to fall by 3.5% in 2020. Singapore, much like South Korea, avoided serious economic consequences by effectively containing the virus.
Singapore is one of the largest transportation hubs in Asia with its Changi Airport while also being the centre of Asia Pacific’s financial industry. With Singapore being a connected economy, the nation is likely to suffer first, and then cause a domino effect on its Asian neighbours.
It looks like Singapore’s recovery will mostly be dependent on the improvement of its trading partners.
Performance of Singapore’s Market Index, STI Index (returns from the week of 1st case of COVID-19 reported 23/1/2020):
- Average Weekly Returns: -1.511%
- Average Weekly Volatility: 153%
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Jaewon Jung, Associate of YIG.