17 Feb 2020
Posted in Business Fundamentals
Trade war hit ASEAN economies facing new challenge from coronavirus outbreak in China, says GlobalData
Although the new trade deal signed between the US and China in January 2020 was a positive move towards the revival of trade lines that are expected to provide a new momentum to the export sector of ASEAN countries, the outbreak of the novel coronavirus has emerged as a major challenge which is disrupting the supply chains in the region, says GlobalData, a leading data and analytics company.
In January 2020, the International Monetary Fund (IMF) has revised down the economic growth prospects of the five ASEAN nations Indonesia, Malaysia, the Philippines, Singapore and Thailand due to slowing exports.
According to the latest Q4 2019 update of GlobalData Country Risk Index (GCRI), Myanmar, Laos and Cambodia had the highest risk in the region mainly due to high level of economic and political risks in these countries.
Athul P Kurian, Associate Research Analyst at GlobalData, says: “Widening current account deficit and exchange rate volatility along with the refugee crisis, authoritarian government and deep rooted corruption are the areas of concern for these countries.”
On the other hand, Singapore and Malaysia had the lowest risk in the ASEAN region due to their strong macroeconomic fundamentals. However, all these countries are hugely dependent on trade (especially with China), which makes them vulnerable to external shocks.
Kurian continues: “Amid the new trade development between the US and China, the manufacturing sector of Singapore has started showing signs of revival since early 2020. A new push is expected for the financial markets of countries like Singapore and Malaysia by more investments from the US market due to the continuous policy rate cuts of Federal Reserve in 2019.”
Meanwhile, the revival of global economy from the trade war in 2019 is under strain as the threat of novel coronavirus is spreading to different countries. The Chinese economy is dwindling due to the shutting down of manufacturing centers and complete halt of markets in corona affected areas.
Kurian explains: “Since the countries have not yet recovered from the trade war between the US and China, the potential trade slow down due to this epidemic will put ASEAN as well as world economy again in a trailing situation.”
According to UN Comtrade database, China’s 17.2% share in total trade (2018) of ASEAN region makes the region vulnerable to the potential slowdown of the Chinese economy. The global trade is on the edge of supply side crunch of intermediate products that are imported from China due to the manufacturing shut down. Along with this, since countries have put a travel ban from China to arrest the spread of the virus, tourism industry is expected to be severely affected.
IMF expects the coronavirus outbreak to have a mild impact on the world economy on medium to long term. Although the short term impact of it on China is visible with the slowdown in tourism and manufacturing sectors, the IMF foresees the economy to remain resilient over the medium term. Kurian concludes: “The region has to reduce its trade dependence to mitigate the economic volatility. It is crucial for these countries to diversify their market access to minimize the adverse impact of economic slowdown in their major trading partners.”