Covid-19: How much will scarring hurt the regional economies?

Highlights from the CAA Weekly Table:

Asian political risks: No good news

• The collapse of the Afghan government hurts the region as a whole. American credibility and its security guarantees are under a cloud, potentially emboldening its rivals to undertake provocations. India is also a big loser. China, however, could emerge in a much better position – as both its major rivals, the US and India are on the back foot.
• Malaysia’s political crisis deepened with Prime Minister Muhyiddin’s resignation. He will continue as caretaker prime minister while the fragmented political groups struggle to agree on a new prime minister and ruling coalition.
• Two worrying trends emerge in Thailand: As protests spread, violence has increased. Moreover, without coherent leadership among the protestors, the likelihood grows that some disaffected groups might provoke the authorities into a harsher crackdown.

Asian economic prospects: 

The resurgence in COVID-19 infections is hurting growth across the region but some countries are likely to rebound more strongly than others as the year progresses.

• China’s economy slowed across the board. But with activity likely to pick up on a rebound in investment, it is unlikely that policy makers will offer much stimulus.
• Taiwan and Singapore’s robust performance can be sustained. As vaccination rates improve, Malaysia should put its malaise behind it, especially as its export sector is doing well.
• India’s economy is finding its footing but Indonesia and the Philippines are still hurting.

Covid-19: watch four areas of scarring that will hurt the regional economies

• The crisis will leave public debt levels much higher, a damaged credit culture, deficiencies in the labour market and capital stock eroded to some extent.
• Taiwan, Korea, Vietnam, Thailand, China and Singapore come out looking stronger than the rest of the pack (Table 1). These countries are marked by relatively strong state capacity.
• Indonesia, India, the Philippines and Malaysia, however, are in a weaker position.

Table 1: Z-scores for metrics on economic scarring in East Asia

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