Asia-Pacific economies are bracing themselves to deal with the impact of the Coronavirus. The driver of the economic implications of the virus is not the lethality of the disease itself. It is the reaction of the communities to it. Public behaviour-pattern is the key determinant as in shaping the consequences of this phenomenon. Small wonder that governments are urging , along with the need for precaution and caution, the absolute necessity of keeping calm and carrying on , just as the British authorities had enjoined upon their people during World War 11.As is to be expected assessments are being made as to the cost of the virus on societies , and what possible measures governments can undertake to mitigate them. As of now, the costs appear rising.
Last week the S&P Global Ratings gave a made a set of dire forecasts for the Asia -Pacific region as the virus raged unabated. It warned that the outbreak could dent the economies of these countries severely, wiping out US $211 billion from their kitties, causing growth to plunge to its lowest level since the Financial Crisis of 2008. Chinese growth- rate could be most threatened, and some other neighbouring economies could hover around recession levels of zero growth.
Fear among investors was more infectious perhaps than the disease itself. Late last week Asian shares fell across the board. The Japanese Nikkei plunged 2.7 per cent as the week ended. Heavy losses were recorded in other countries. Australia fell 2.8 per cent, Hong Kong 2.3 per cent, South Korea 2.3 per cent, Singapore Straits Times Index 1.9 per cent and China, 1.3 per cent. Last December, growth in the Asia-Pacific Region was predicted to be 4.8 per cent. Revised estimates are now putting it at 4 per cent. However given that the fundamentals are strong, just as also the economic base , this rate of growth, small for most developing countries, would not spell catastrophe for the mature ones of this kind. The main cause of such significant declining numbers would be the supply- and-demand shock as manufacturing suffers due to shutdowns and consumers prefer to stay at home, rather than go out on shopping sprees. Also, the huge decrease in the number of Chinese tourists across the region, who are usually affluent buyers, is taking its toll.
The S& P report cited earlier is however optimistic that the current scenario will pass, whereupon a U-shaped recovery, or a rebound will occur. The countries concerned, China included, are confronting the spread of the virus aggressively. Already in China the number of affected persons is showing a decline. If this trend continues through the second quarter of the year, the recovery may begin as early as in the third quarter. Furthermore, the report assumed that the virus would not permanently damage the labour force, the capital stock or productivity, and these factors would not be impaired in the long run. So, the extrapolation from this when psychologically the sense of fear erodes and confidence in the ability of the authorities to handle the crisis is sufficiently restored, an economic upswing of a decent magnitude will result.
Among the affected countries of the region, Singapore has already announced impressive and comprehensive relief measures, both in the short term and in the long term. The short- term measures come as a part of the S$4 billion Stabilization and Support package for this year for the badly affected businesses. The Working Capital Loan under the Enterprise Financing Scheme, which will assist small and medium sized enterprises to access necessary capital needs, would be enhanced from the current month.
In the long- term, the government will be focussed, according to the concerned Minister, on two long-term drivers of change: global shifts, and technology. The virus has disrupted supply chains causing companies to fundamentally re-examine the diversity and resilience of their sources of supply. He further stated that grant and tax schemes have been expanded, to assist the companies in their ventures overseas. Necessary technological transformations would accompany and hopefully propel the recovery across the board.
The take -away from all this is, yes, there is a crisis. But, so far as the seriousness of the disease, at least of its current strain, appears to be less than that of others of the ilk that we have experienced before. The main cause for fear is not so much due to the fatalities involved, but because the knowledge about its cause and cure are currently insufficient. The broad reason of the negative economic impact is panic in the minds and behaviour of community members. This is what has caused the empty shelves in the supermarkets, and fierce fights over cleansing materials, such as toilet rolls, as evidenced in a viral photograph at a store in Sydney, Australia. The situation does not warrant that. The rest of Asia has the advantage of learning from the experience of the Asia-Pacific, where the countries have in many ways been ‘first responders’ to the crisis, as the disease enters those parts as it seems to have begun to.
However, the biggest issue many of the developing countries will confront is the financial wherewithal necessary to counter and mitigate, not just the disease and its after-affects, but also its short and longer term impact on the economy and on overall development. The resources on offer from the world Health Organization is limited in terms of both amount and scope. The decision of the International Monetary Fund to make available US $50 billion through its rapid-disbursing emergency financial facilities is welcome. Particularly, the US $ 10 billion component at zero interest rate for the poorest members through the Rapid Credit Facility. Perhaps the Unite Nations should also marshal its wealthier membership to contribute generously to a Special Fund for the purpose. If globalization was being thought of, as one is wont to do in current times, as an idea whose time has come and gone, the coronavirus is surely pointing to the need for its return!
Dr Iftekhar Ahmed Chowdhury is Principal Research Fellow at ISAS, National University of Singapore, former Foreign Advisor and President of Cosmos Foundation Bangladesh.