Macroeconomy

Asia braces for economic impact of virus as China continues uneven recovery

China

The path to 'normal' will likely be lengthy and bumpy for Asian economies

The latest manufacturing purchasing manager index (PMI) reports for Asia reveal the massive economic damages caused by the coronavirus pandemic. The worst readings for April were in India and Indonesia, which both recorded readings below 30 (50 is the dividing line between expansion and contraction). Malaysia, the Philippines, Vietnam, South Korea, Taiwan and Singapore also reported PMIs well below 50. The official Chinese PMI suggested a slight expansion  in manufacturing activity (50.8), but the Markit (Caixin) PMI, which covers more smaller-size exporters, fell back into contraction territory again (49.4).

 

Of course, the collapse in PMI readings in Asia mainly reflect the impact of the government-imposed containment measures in response to the covid-19 pandemic. But even for some economies where the coronavirus situation is already under control, weak global demand is creating strong headwinds. South Korea and Taiwan are considered the role models for fighting the coronavirus, especially the latter. Yet, as the PMIs show, both economies have been hammered by the collapse in global demand for their exports.

 

As the first country to emerge from the coronavirus outbreak, China’s economy continues to rebound.  But its path to recovery is uneven and will likely continue to be bumpy, especially for the services sectors.

 

A look at the Chinese PMI data reveals some interesting dynamics. Although it remained (just) above the 50, official manufacturing PMI moderated in April after a sharp rebound the previous month. By contrast, the official non-manufacturing PMI continued to improve in April, coming in at 53.2 versus 52.3 in March.  In our view, this shows that Chinese manufacturers are being hit by the same contraction in external demand that has hit other Asian exporters, while the non-manufacturing index points to continued recovery in the domestic economy.

 

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