Escalating financial risks: how will Asian economies fare? ; Singapore: Recession imminent; aggressive stimulus forthcoming

Highlights from the CAA Weekly Table

Four themes emerge from recent developments…

  • More global dislocations portend contraction in Asia: Extreme restrictions on social mingling and travel will crush economic activity around the world for at least 1-2 months; China’s recovery could surprise positively but it will not offset the overall shock to global demand.
  • Growing signs of financial stress: The sharp fall in cashflows is likely to lead to a rise in defaults, the fear of which is already causing severe corrections in financial markets. High debt levels are amplifying the scale and severity of these aftershocks.
  • Policy responses are becoming formidable: The total stimulus being considered now amounts to about 5% of global GDP, but it is the composition of fiscal spending as well as the accompanying non-fiscal measures which are key. Importantly, the cumulative effect of policy support measures will only begin to drive a recovery in the second half of the year.
  • Look beyond the virus crisis: other stresses are building: Tensions in the oil market and geo-political stresses are building, which could amplify virus-related shocks.

leading us to revise our forecasts for Asian economies:

2020

Growth (%)

Inflation (%)

CA (% of GDP)

Currency (vs. USD)

Policy Rate (%)

China

2.5

3.0

0.8

6.95

2.80

Hong Kong

-0.7

1.5

2.5

7.80

India

5.2

3.8

-1.3

73.0

4.30

South Korea

0.6

0.7

3.6

1,150

0.50

Taiwan

1.6

0.6

11.0

29.7

1.00

Singapore

-0.4

0.4

16.0

1.40

Thailand

-0.5

0.3

5.2

32.5

0.50

Vietnam

5.5

2.6

1.7

23,100

4.50

Indonesia

4.6

2.9

-2.5

14,500

3.75

The Philippines

5.5

2.7

-1.5

51.0

2.75

Malaysia

2.5

1.3

3.0

4.3

2.00

Source: Centennial Asia Advisors

Escalating financial risks: how will Asian economies fare?

  • In the previous Weekly, we flagged three risks posed to Asia from the escalating financial contagion that have since materialised in full: the region’s currencies, equities and bonds have continued to take a drubbing, while a stratospheric rise in the USD has magnified fears of a dollar funding squeeze for the non-financial corporate sector.
  • Now, a toxic mix of sharply slowing growth from the impending collapse in global demand, tightening financial conditions and existing high leverage in some jurisdictions will amplify the economic damage that is to come, with negative implications for banking sector stability.

Singapore: Recession imminent; aggressive stimulus forthcoming

  • The precipitous decline in global activity makes it virtually certain that Singapore will enter a recession in 1H20. With broad-based economic weakness likely on top of downside risks to the inflation outlook and the probability of further slippage in the labour market, policy support will be aggressively ramped up to cushion the worst of the virus’ effects.
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23-Mar-2020


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