Locking down

The economic outlook for much of Emerging Asia has deteriorated in recent weeks in response to a sudden jump in COVID-19 infections. Daily cases are surging in Thailand and Malaysia, and while the overall numbers remain low, Taiwan, Singapore and Vietnam have also reported a big rise in daily infections. Most countries in the region have reintroduced restrictions to slow the spread of the virus, and the high-frequency data suggest that mobility has fallen sharply. As we outlined in a recent Update, hospitality and recreation are being hit hardest by the new restrictions, while hopes for a swift recovery in tourism sectors have taken a further blow. But other parts of the economy should hold up relatively well. A jump in online sales has helped to compensate for a drop in sales in physical shops. Meanwhile, with factories being allowed to remain open, industrial production should continue to expand at a decent pace, helped by strong demand for the region’s exports. Governments have so far responded with more stimulus measures to support economies through the lockdowns, and while we don’t expect any further interest rate cuts, the recent deterioration in the outlook reinforces our view that rates will remain low across the region for some time to come.