[email protected] huani.zhu@mizuho-cb ...€¦ · significant social, political...
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MI200311
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Mizuho Bank, Ltd.
Asia & Oceania Treasury Division
Mizuho Insights (Ref: MI200311)
March 11, 2020
Dealing with COVID-19 in ASEAN
ASEAN economies under pressure
The spread of the COVID-19 virus across the globe from Asia into Europe and the US has created fears
of a pandemic. This sort of spread puts pressure on any country’s social, political and economic fibers.
The same is true for the ASEAN countries (Indonesia, Malaysia, Philippines, Singapore, Thailand,
Vietnam, Cambodia, Laos, Myanmar and Brunei).
Social pressures
The social pressures when dealing with a highly contagious outbreak is undoubtedly a daunting task for
any government. As Singapore’s PM said in his speech to the country on 7 February, “…fear can do
The ASEAN economies, much like the rest of the world, have come under
significant social, political and economic pressures from the COVID-19 outbreak.
The social pressures come from being able to effectively contain the outbreak by
providing timely detection and response mechanisms as well as communicating
transparently to the public.
The political pressures on any government to contain such an outbreak are
immense and will be exacerbated for countries like Malaysia and Thailand, where
the government of the day is in a fragile position.
The economic pressures initially stemmed from the near complete lockdown of
China. But as the outbreak spreads rapidly across the globe, the economic
pressures are becoming more persistent and broad-based.
Taken together, we believe that within the ASEAN space, Thailand and Malaysia’s
are the most exposed to a significant growth slowdown followed by Vietnam and
Singapore. Indonesia and the Philippines are relatively more insulated.
Notwithstanding this differentiation, the scale of the outbreak has prompted
authorities (governments and central banks) in all these countries to announce
some form of stimulus measures.
The governments of Indonesia, Malaysia, Thailand, Singapore and Vietnam have
announced fiscal measures to support businesses and individuals impacted by the
outbreak.
The central banks of Indonesia, Malaysia, Thailand and the Philippines have cut
interest rates with expectations of further cuts in the coming months.
Lavanya Venkateswaran
Market Economist
Zhu Huani
Market Economist
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more harm than the virus itself.” To contain the fear, governments need to establish a sense of trust with
its people through accurate reporting standards, transparent communication and effective disease
testing and containment methodologies.
On all these fronts, the experience of the ASEAN countries has been mixed. The Singapore
government’s monitoring and communication so far stands out on account of its high quality contact
tracing capabilities, transparent communication to the public and timely economic responses (see:
Mizuho Flash: Singapore Budget: Unprecedented & Unwavering, 18 February 2020). By contrast, in
Indonesia, following some concerns around the under-reporting of cases1, the government confirmed
its first local case of the virus only on 2 March and released protocols to deal with the outbreak only on
6 March2.
At a broader level, Indonesia, the most populated of the ASEAN countries, has 20 confirmed cases
while Singapore, the least populated, has confirmed 160 cases (as of 10 March, 2020). Laos and
Myanmar are yet to report any confirmed cases of the virus (Figure 1), despite sharing (a relatively
porous) border with China. Cambodia has confirmed only two cases so far; PM Hun Sen actually
travelled to China in early February following the outbreak to express “solidarity with the Chinese
government and Chinese citizens in this time of difficulty”.
The differentiation within each of these countries in handling the outbreak underscores differences in
factors such as public health infrastructure, physical infrastructure, institutional capacity, economic
resources, and public health communication. The very factors captured by the Epidemic Preparedness
Index3 (EPI) which has been developed by Metabiota (Oppenheim et al. 2019). According to the EPI,
countries with a score of 1 are most prepared while those with a score of 5 are least prepared. Most
Asian countries, including the ASEAN countries, score between 1 and 4 – with Singapore scoring 1,
Indonesia and the Philippines scoring 3 & Cambodia, Laos and Myanmar scoring 4 (Figure 2).
1Using predicted imports of 2019-nCoV cases to determine locations that may not be identifying all imported cases, De Salazar PM*, Niehus R*,
Taylor A, Buckee C, Lipsitch M., https://doi.org/10.1101/2020.02.04.20020495
2Indonesia launches official protocols for COVID-19 outbreak, Jakarta Post, 6 March 2020.
3Oppenheim B, Gallivan M, Madhav NK, et al. Assessing global preparedness for the next pandemic: development and application of an Epidemic
Preparedness Index. BMJ Glob Health 2019;4:e001157.doi:10.1136/bmjgh-2018-001157. The World Bank also cites this study in their paper
"Pandemic Preparedness Financing Status Update”, September 2019.
SingaporeMalaysia
ThailandVietnam
PhilippinesIndonesia
MyanmarCambodia
Laos0
30
60
90
120
150
180
0 50 100 150 200 250 300
Figure 1: Number of confirmed cases relative to the population
Total population
Number of confirmed cases (as of 10 March)
Source: World Bank; Johns Hopkins; Mizuho Bank
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Figure 2: Global distribution of Epidemic Preparedness Index (EPI) scores, with countries
binned by k-means clustering (1=most prepared, 5=least prepared)
Political pressures
The unenviable job of the dealing with health outbreaks can either reveal cracks or showcase the
strength of the government of the day. Within the ASEAN space, even in countries such as Indonesia,
Singapore and the Philippines where the governments in power enjoy majority support, efforts around
containment and relief are constrained significantly by institutional barriers.
The task for countries where the government is fragile only gets more challenging. Such is the case
with Malaysia and Thailand, in our view. The recent political turmoil will exacerbate pre-existing
institutional difficulties in handling the COVID-19 outbreak. In Malaysia, the new PM Muhyiddin Yassin
is yet to prove that he has the majority support of the Parliament which can now only be done on 18
May when Parliament reconvenes, following a more than two month postponement. This protracted
political uncertainty will in turn slow the execution of the relief package announced by the previous
government and exacerbate the weakness in business and consumer sentiment.
In Thailand, the Constitutional Court’s order to dissolve one of the biggest opposition political parties in
the Lower House has raised doubts about the legitimacy around the country’s transition to a more
democratic rule. These actions worsen consumer and business confidence at a time when underlying
growth momentum is already weak, resulting in a double whammy for the economy.
Economic pressures
Initially, the COVID-19 outbreak seemed China-centric, and as a result, the direct loss of output for the
ASEAN-4 economies was related to their dependence on China. However, with the crisis now going
global, the loss of output will compound.
A. The China connection
i) High exposure through trade channels: The COVID-19 outbreak exposes the heavy reliance of
Source: BMJ Global Health; Ben Oppenheim et al. BMJ Glob Health 2019;4:e001157
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the ASEAN economies on China. China is now one of, if not the biggest, export and import destination
for most countries in the region. For the biggest six ASEAN economies (Indonesia, Malaysia,
Philippines, Singapore, Thailand and Vietnam), China is the biggest trade (export plus import) partner
not including for intra-regional trade among these countries (Figure 3).
Clearly, the first order impact will be that trade channels are disrupted: exportation and importation of
key items will be affected resulting in delayed production and slower output. The quarantines across
various Chinese cities have made it difficult for items of export or import to leave the port or, in some
cases, even reach ports4. Of the items that China exports to the ASEAN-6 countries, the top 15 items
include electronics machinery, commodities including mineral fuels, rubber and copper while in terms of
imports, the top 15 items include electrical machinery and equipment, iron & steel, mineral fuel and
chemicals (Appendix 1: ASEAN top exports and imports by items to and from China).
Importantly, now that supply-chains across the region are more closely integrated, there will also be an
indirect impact from a slowdown in Chinese trade. China’s value-added into the gross exports across
the ASEAN-6 countries has increased significantly since 2005. Its highest value-added is for Vietnam’s
exports followed by Thailand and Malaysia (Figure 4). The gross value added into exports from
Indonesia and the Philippines, although rising over the ten year period, is still fairly small compared to
peers.
ii) Investments from China to slow: Foreign Direct Investment inflows are another channel where
these economies could potentially experience a slowdown. FDI flows from China, HK and Taiwan
accounted for 13.5% of total inflows in the ASEAN countries in 2018, albeit slowing from 14.5% in
20175. Mainland China alone contributed 9.3% and 6.6% of total FDI in 2017 and 2018, respectively. By
industry, wholesale and retail trade, manufacturing and the real estates continued to hold the largest
share of the pie (Figure 5).
4 Virus Disrupts China’s Shipping, and World Ports Feel the Impact, New York Times, 27 February 2020.
5 ASEAN Investment Report 2019, United Nations Conference on Trade and Development.
0
5
10
15
20
25
Intra
-AS
EA
N-6
Chin
a
US
EU
Japan
South
Kore
a
Hong K
ong
India
Figure 3: Share of total trade (exports plus imports) for the ASEAN-6 economies
%total
Source: UNComtrade; Mizuho BankNote: The intra-ASEAN-6 trade is calculated by excluding the country under under study
0
5
10
15
20
25
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
USDbnFigure 4: Value added in gross exports by China
Indonesia Malaysia
Philippines Singapore
Thailand Vietnam
Source: OECD TiVA database; Mizuho Bank. Note: The "origin of value added in gross exports" reveals how the value of a country’s gross exports of intermediate and final products is an accumulation of value generated by many industries in many countries
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The slowing trend of FDI inflows into ASEAN from China from 2017 to 2018, according to the ASEAN
Investment Report 2019, reflects “the global fall in Chinese OFDI flows in 2018 as well as China’s policy
of curbing Chinese OFDI in industries such as real estate, entertainment and sports”. The COVID-19
outbreak coupled with the shifting of supply-chains brought on by US-China trade tensions will likely
exacerbate this trend, leaving the ASEAN economies more vulnerable to lower FDI inflows from China.
In 2018, Malaysia and Singapore were the two big economies which saw a fall in Chinese FDI.
iii) Tourism hit will be hard: The impact of the COVID-19 outbreak is most obvious on tourism. With
much of China under quarantine and travel restrictions being imposed on Chinese nationals by many
ASEAN countries, tourism will certainly suffer given that the share of Chinese tourists has increased
exponentially since 2002 (Figure 6). The most exposed to the slowdown are Vietnam, Thailand and
Singapore.
Furthermore, apart from the direct contribution of tourist arrivals on growth, there is also the indirect
contribution captured through travel and tourism related investment spending, government spending
and purchases by sectors dealing with tourists (airline industry, accommodation, food catering industry
etc.). In this regard, the total contribution of travel and tourism to GDP is highest in Thailand, the
Philippines and Malaysia (Figure 7).
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USDbnFigure 5: FDI inflows into ASEAN from China (by sector)
2017 2018
Source: ASEAN Investment Report 2019; UNCTAD; Mizuho Bank
0
5
10
15
20
25
30
35
Vie
tnam
Thaila
nd
Sin
gapore
Philip
pin
es
Indonesia
Mala
ysia
Figure 6: Tourist arrivals from China
2002 2018
Source: CEIC; Mizuho Bank
% total
0
5
10
15
20
25
Th
aila
nd
Ph
ilipp
ine
s
Mala
ysia
Sin
ga
po
re
Vie
tnam
Ind
on
esia
Figure 7: The total contribution of travel and tourism to GDP
%GDP
Source: World Travel and Tourism Council; Mizuho Bank
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iv) Restrictive labour movements will delay joint infrastructure projects between ASEAN and
China: Increasingly, albeit to a much smaller extent than trade, investment or tourism is the issue of
greater involvement of Chinese labour in ASEAN. The expansion of the Belt and Road Initiative along
with higher Chinese FDI has led to Chinese contractors become increasingly involved in infrastructure
projects in ASEAN economies (Figure 8). There is anecdotal evidence to suggest that the progress on
some these projects have been affected as workers remain stranded in China due to tighter travel
restrictions. As an example, ~300 Chinese staff working on the Jakarta-Bandung high-speed rail project
in Indonesia reportedly could not return to work6.
B. COVID-19 goes global
COVID-19 started out as a China-centric epidemic but has now officially spread across the world.
Outside of China, Italy, South Korea, Iran, France and Germany have the highest number of infections;
with the count of those infected climbing every day (Figure 9). The Italian government has put the entire
country under quarantine to reign in the spread of the disease while South Korea has deployed social
monitoring to track and contain the spread of the virus.
Notwithstanding the efforts of these governments, there will be significant consequences from the
global outbreak. The biggest two channels of impact are through trade and tourism.
i) The trade channel: Although the bigger ASEAN economies are not exposed to Italy, South Korea or
Iran in the way that they are to China, the compounding impact of so many countries tackling the
disease will weigh on overall external demand. In particular, with more countries within the EU
becoming inflicted by a large number of confirmed cases of COVID-19, the ASEAN-6 trade with the EU
(its fourth biggest trade partner) will come under significant pressure. As will its trade with Japan, which
has close to 600 confirmed cases.
6 Virus delays Indonesia’s $6bn high-speed rail project, Global Construction Review, 24 February 2020.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
IDN MYS PHL THA
Figure 8: Construction contracts under Chinese contractors(USD bln, sum of 2017-2019)
Sources: The American Enterprise Institute and The Heritage Foundation, Mizuho Bank
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In addition, there will be some sectors that are more impacted than others, leading to further downside
risks for ASEAN countries closely associated with that sector. A case in point is South Korea’s
integration into the global supply chain for electronics. As factory operations in South Korea slow
significantly with a rising number of work-related COVID-19 infections, electronic trade from Indonesia
and the Philippines, which export more in that domain to South Korea, will likely be more impacted than
Malaysia or Thailand (Figure 10). Similarly, the disruption to manufacturing in Japan, which is
integrated into the global auto supply chain, will hurt Thailand’s trade; Thailand is hub for auto
manufacturing in ASEAN.
ii) Tourism channel: Apart from China, tourist arrivals from other parts of the world will also be
impacted by the virus outbreak. Travel bans, mandated quarantines and a general sense of precaution
will lead to fewer tourist inflows into ASEAN from other countries that are dealing with the outbreak
including EU members such as Italy, Germany and France, US, Japan and South Korea; these
countries account for a large proportion of total tourist inflows into the region. There will also be a
significant knock-on impact on tourism related sectors in these economies from the drying up of tourist
money.
Putting it all together
Putting it together, we estimate that the more open economies of Thailand and Malaysia will be the
most impacted with GDP growth falling by more than 1pp relative to our baseline before the outbreak
for full year 2020 (Figure 11). For Indonesia and the Philippines, the outbreak will impact headline
growth to a lesser extent (0.4pp-0.5pp) but this is premised on the COVID-19 crisis spiking in Q2.
91727513 7161
1412 1231 1224 754 530 374
02,0004,0006,0008,000
10,000
Italy
South
K
ore
a
Iran
Fra
nce
Germ
any
Spain
US
Japan
Sw
itzerla
nd
Figure 9: COVID-19 Confirmed cases by country (outside of Mainland China)
Source: Johns Hopkins CSSE, Mizuho Bank
Persons,(as of 10 March)
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
PHL IDN MYS THA
Figure 10: Electronics exports to South Korea (% of total electronics exports, avg
of 2016-2018)
Sources: WTO, Mizuho Bank
-1.2-1.1
-0.6 -0.5-0.5 -0.4
-1.4
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
Thailand Malaysia Vietnam Singapore Philippines Indonesia
Figure 11: The open economies of Thailand and Malaysia will be most impacted; Philippines and Indonesia the least
Change in GDP growth relative to previous baseline forfull year 2020
pp
Source: Mizuho Bank
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All the ASEAN-6 countries, in one way or another, have announced some form of relief measures to
help cushion the blow of the outbreak (Figure 12). Below we discuss the details of each country staring
from the most impacted to the least.
Figure 12: Summary table of measures announced so far
Source: Bloomberg; Reuters; Local newspapers; Mizuho Bank
Thailand: High degree of exposure to tourism weighs on growth
The high degree of reliance on tourism and exports makes Thailand the hardest hit economy among
the ASEAN countries. Chinese tourists account for almost one-third of total tourist arrivals (Figure 12)
and the Tourism Authority of Thailand said that February’s visitor numbers dropped 44.3% from last
year with the downward trend likely to continue into March and April7. As number of confirmed cases
globally continues to climb, the attractiveness of international travel will decrease. As such, total foreign
tourist arrivals for the year are expected drop by 15% to 33mn, the lowest since 2016. This is decisive
as tourism revenue is an important source of foreign exchange earnings with net travel services exports
constituting around 9% of GDP, much larger than goods surplus at around 5% of GDP (Figure 13).
The outbreak exacerbates an already weak domestic demand picture. Consumer confidence has been
depressed in the wake of political uncertainties; drought conditions have been a drag on farm income;
tepid growth in employment and household income are weighing on private consumption and all this
7 Tourist arrivals plummet 44.3% in February due to coronavirus, Bangkok Post, 9 March 2020.
Country Fiscal stimulus Monetary policy Comments
Indonesia Yes, ~0.1% of GDP
Yes, BI cut its policy rate by
25bp at its Feb 20 meeting
The government has said it will introduce a second fiscal
stimulus package which will be larger than the first; BI will
cut its policy rate by another 50bp in our view. Authorities
also have room to introduce additional macroprudential
measures to lower the cost of credit and improve the
availability of credit to affected groups
Malaysia
Yes, ~1.3% of GDP but a
lot of the announcements
will not introduce new
money into the economy
Yes, BNM cut its policy rate
by 25bp at its 3 March
meeting
The government is unlikely to introduce another fiscal
stimulus package soon as there are fiscal constraints but
will instead focus on implementing the announced package.
BNM has left the door open for further easing - we expect
an additional 25bp cut in Q2
Philippines No
Yes, BSP cut its policy rate
by 25bp at its 6 February
meeting
BSP will likely cut rates further to support growth: we
expect an additional 50bp in rate cuts in H1. The
government has indicated that it is ready to support the
economy but stopped short of committing to any specific
fiscal stimulus
Singapore
Yes, ~1.3% of GDP
announced as a part of the
budget on February 18
No, but the SGD NEER has
weakened since the
outbreak intensified
The government will focus on disbursing the money
earmarked to handle the outbreak. Market expectations are
that MAS will, at its April meeting, deliver some form of
easing
Thailand Yes, ~2.4% of GDP
Yes, BOT cuts its policy
rate by 25bp at its 5
February meeting
The recently approved stimulus package includes
THB100bn of soft loans for tourism-related operators,
delayed debt payment, lower utility expense and other
costs for affected businesses. Targeted measures for travel
industry includes reducing flight operation charges such as
lower landing, parking and air navigation fees. To stimulate
domestic demand, phase 4 of 'Eat Shop Spend' will be
launched.
Vietnam Yes, ~0.4% of GDP
No, but SBV ordered
commercial banks to
eliminate or delay interest
payments on loans to
companies affected by the
coronavirus outbreak.
The government will focus on implementing the fiscal
stimulus package which comprises tax breaks, delayed tax
payments and expediting infrastructure spending. SBV
plans to offer VND285trn of cheap loans with interest rate
discount of 0.5-1ppts to affected businesses
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against a backdrop of elevated household debt. Although fiscal policy support to growth will pick-up
following the delayed approval of the FY2020 budget, it will unlikely offset still anemic private sector
investment growth which is being weighed down by political uncertainty.
Given increasing downside risk on growth, Bank of Thailand (BoT) was one of the earliest central banks
in the region to cut its policy rate to a record low of 1.00% at its 5 February meeting. This came despite
the relatively narrow interest rate spread with the US compared to other regional economies and
financial stability concerns. The unanimous support for the latest rate cut suggests that MPC is likely to
continue prioritizing growth going forward and we therefore think BOT will cut policy rate again in Q2.
Whilst the disrupted supply chain will eventually be restored, the level of confidence in the travel
industry is expected to take longer to recover. As a result, it is hard to estimate when tourists will return
to Thailand. To that end, the efficacy of some of the government’s policies to attract international
tourists may also be questioned. Even the Phase 4 of “Eat, Shop, Spend” campaign to stimulate
domestic travel may not generate the expected revenues. Nonetheless, the government announced a
relief package worth ~2.4% of GDP aimed at alleviating the stress of the tourism sector by providing
operators with soft loans and relaxing the rules for debt restructuring.
Malaysia: Struggling before, during and after the COVID-19 outbreak
Unfortunately for the Malaysian economy, the COVID-19 outbreak comes at an already fragile time.
GDP growth even prior to the outbreak had slowed to a decade low in Q4 2019 on weak exports,
agriculture and manufacturing sector growth and the political situation erupted in late February. The
fractious political coalition (i.e. Pakatan Harapan) cobbled together after the May-2018 elections came
undone with Mahathir’s resignation on 24 February. Although Muhyiddin Yassin was appointed on
March 2 as PM, the situation remains delicate with the uncertainty likely to weigh on investment
spending (both in the private and public sectors). In another ill-timed twist, the tumult in the
commodities prices triggered by the crude oil price war between Saudi Arabia and Russia worsens the
growth outlook for a net commodity exporter like Malaysia. As such, we expect Malaysia’s growth to be
1.1pp lower than prior to the outbreak at 3.6% in 2020 with risks titled to the downside.
Counter-cyclical policies introduced so far have, to the credit of policymakers, been fairly decisive.
The government announced a package worth MYR20bn (~1.3% of GDP) to help bolster growth with the
focus on mitigating the impact of the outbreak by easing cash flow constraints for affected businesses
0%
5%
10%
15%
20%
25%
30%
0%
2%
4%
6%
8%
10%
12%
14%
2005 2007 2009 2011 2013 2015 2017 2019
Figure 13: Tourism sector indicators
Tourism revenue (% of GDP)
Chinese tourists (% of total,RHS)
Sources: CEIC, Mizuho Bank
-15%
-10%
-5%
0%
5%
10%
15%
20%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Figure 14: Current account (% of GDP, 4QMA)
Income and transfer Other services
Goods Travel services
CA
Sources: CEIC, Mizuho Bank
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and providing direct support to industries and individuals affected while also aiming to stimulate broader
investment spending.
Prudently, there is little by way of new money in the policy announcement (~0.2% of GDP according to
official estimates) as Malaysia’s debt profile already looks stretched. The debt to GDP ratio is at ~54%
and if government guaranteed debt is included, the ratio rises to 72.1% (Figure 15). The risks are that
the protracted political uncertainty and horse-trading will take the administration’s focus away from
implementing the package to political matters, which will harm growth.
Bank Negara Malaysia (BNM) complimented the fiscal policy package by delivering a 25bp at its 3
March meeting, after having already cut the policy rate by 25bp at its 22 January meeting. While these
cuts have helped bring down the cost of credit in the economy as witnessed in lower lending and
deposit rates (Figure 16), monetary policy will have limited efficacy in stemming downside risks to
growth emanating from a health outbreak. That said, the US Federal Reserve cutting its policy rate by
50bp on 3 March has paved the way for further easing by global central banks including BNM. We
expect BNM to cut its policy rate by another 25bp at its meeting on 5 May.
Vietnam: Tourism to take a hit on top of production disruptions
As China, South Korea and Japan collectively account for more than 40% of Vietnam’s foreign trade
and all three countries, especially for China and South Korea, have seen various degrees of production
disruption; Vietnam’s trade is certain to be impacted. With the exception of domestic-oriented
enterprises, which source raw materials domestically, businesses that engage in trading activities have
already been affected as cross-border trade activities are hampered by the outbreak due to tightened
measures on transportation and restriction on logistics.
Tourism is also expected to be hit hard as foreign tourists from China, South Korea and Europe jointly
constitute more than two-thirds of Vietnam total international tourists arrivals. As Vietnam suspended
flights to and from mainland China and visa-free travel for citizens from numerous European countries
and South Korea, incoming tourists are likely to fall significantly in Q1 and possibly into Q2.
0
10
20
30
40
50
60
70
80
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Figure 15: Malaysia government debt
Govt debt
Govt debt guaranteed by Federal Government
%GDP
Source: CEIC; Mizuho Bank
4.14.24.34.44.54.64.74.84.95.05.15.2
2.5
2.6
2.7
2.8
2.9
3.0
3.1
3.2
3.3
Jan-12 Jan-14 Jan-16 Jan-18 Jan-20
Figure 16: Policy rate versus commercial bank lending rate
Policy Rate
Weighted average lending rate (RHS)
Source: CEIC; Mizuho Bank
% %
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Similar to other economies in the region, the Vietnamese government has also introduced stimulus
measures (VND27trn, ~0.4% of GDP) directed towards the worst affected industries including tourism,
transport and agriculture in the form of tax breaks and lowered land lease fees. In addition, SBV will
also offer VND285trn worth of cheap loans to financially-strained businesses. Commercial banks are
being urged to eliminate or delay interest payments on loans to those affected companies. Whilst SBV’s
hands may be tied by elevated inflation, these targeted liquidity measures should provide some relief in
the interim. However, if the situation fails to stabilize in early Q2, then the probability of SBV joining
other central banks in easing will likely increase.
Singapore: “Open” to shocks, mitigated by pre-emptive dampeners
By virtue of being a small open economy – in terms of production, labour and finance – Singapore’s
exposure is by definition going to be relatively large. But this has been mitigated, to some extent, by
top-notch healthcare facilities, pre-emptive detection and rapid contact tracing; all of which materially
enhance containment.
Although containment will help dampen the virus contagion, economic fallout will be exceedingly hard
to side-step. Fact is, supply-chain and financial shocks are more about proactive fiscal and liquidity
management, than it is aimed at deflecting downside risks altogether.
Nevertheless, these shock dampeners are critical to ensure that the stress placed on the economy
does not unnecessarily spiral into a crisis of survival; especially for smaller businesses without the
luxury of cash buffers.
In turn, this may position Singapore on slightly better footing during the recovery phase two to three
quarters down.
Philippines: Resilient but not immune
The Philippines economy is a domestic demand driven economy which is relatively insulated to
external shocks emerging from trade channels. That said, it is more reliant on its travel and tourism
sectors than Indonesia and hence will experience a bigger drag on growth from the COVID-19 outbreak.
In addition, a rise in the number of COVID-19 cases will slow domestic consumption and potentially
delay investment spending.
0%
5%
10%
15%
20%
25% Figure 17:Vietnam's main trading partner (% of total trade in value)
Sources: WTO, Mizuho Bank
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
0%
5%
10%
15%
20%
25%
30%
35%
China South Korea Europe Japan Taiwan
Figure 18: Tourism indicators
Foreign tourists (% of total)
Confirmed COVID-19 cases(RHS)
Sources: CEIC, Mizuho Bank
Notes: Number of COVID-19 cases is as of 10 March. Number for Europe includes the 10 European countries with the most number of cases.
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Although the confirmed cases of those infected COVID-19 are low at 24 people, Philippines authorities
are cognizant of the need to step up efforts to contain the virus and address institutional shortcomings
such as shortage of testing kits. The President declared a state of ‘public health emergency’ on 8 March
allowing the government to cap prices of basic goods and speed up procurement of medical supplies.
The government is also enabled to implement quarantine strict orders to help contain the spread of the
outbreak8.
The government has not formally announced any fiscal stimulus measures but the Lower House, on 10
March, approved PHP1.65bn (~0.01% of GDP) as additional funds for the Department of Health. The
relief measures under discussion seem more sector specific and ad-hoc. For example, Civil Aviation
Authority of the Philippines (CAAP) is contemplating deferring the collection of take-off, landing and
parking fees as form of relied for airlines9 while the National Economic and Development Authority
(NEDA) proposed to seek permission from Congress for Philippines exporters to sell their products on
the local market10
. As it stands, the Philippines has ample fiscal space to support growth given its
well-contained debt to GDP ratio (Figure 19).
Bangko Sentral ng Pilipinas (BSP) has been more decisive in its counter-cyclical policy action. It
lowered its policy rate by 25bp at its 6 February meeting (Figure 20) with the BSP Governor stating that
there is room for additional cuts; we expect an additional 50bp in rate cuts in H1 2020. In addition, BSP
said it will provide regulatory relief to banks and quasi-banks that have experienced losses from
exposure to borrowers, industries and sectors affected by the African swine flu and coronavirus11
.
Indonesia: Risks of late detection could lead to a protracted growth slowdown
Similar to the Philippines, a rise in the number of COVID-19 cases in Indonesia will slow domestic
consumption, especially for non-essential goods, and delay investment spending as businesses remain
on the sidelines waiting to see through the uncertain period. The economy is relatively more insulated
through the trade, investment and tourism channels and hence we expect that GDP growth will be
impacted the least within the ASEAN-6 space.
That said, Indonesia faces a significant risk from under identification or reporting of COVID-19 cases.
Should the number of confirmed cases domestically spike once the outbreak at a more global level has
plateaued, then the economy is at risk of a protracted slowdown stemming from increasingly
8Arrest allowed for refusal to follow measures vs. COVID-19 – DOH, CNN Philippines, 9 March 2020.
9Deferred airport fees ordered for airline coronavirus relief, Business World, 9 March 2020.
10NEDA sees job losses up to 60,000 due to virus, Business World, 10 March 2020.
11BSP offers relief package for banks to calm jittery markets, Inquirer.net, 10 March 2020.
40
45
50
55
60
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Figure 19: Government debt%GDP
Source: CEIC; Mizuho Bank
2.02.53.03.54.04.55.05.5
Jun-16 Mar-18 Dec-19
Figure 20: Philippines monetary policy corridor
Overnight Lending Facility
Reverse Repurchase Rate
Overnight Deposit Rate
%
Source: CEIC; Mizuho Bank
MI200311
13
entrenched expectations of weak consumer spending, poor business activity and the lack of a revival in
the tourism sector.
The absence of domestic cases until 2 March (officially) led the government to announce a modest
fiscal package of ~0.1% of GDP on 26 February. The fiscal package focused on bolstering the tourism
sector by channeling funds for marketing to encourage domestic and international travel, providing tax
breaks for impacted business in top tourist destinations and introducing interest and down payment
rebates for the housing sector. Following the official confirmation of COVID-19 cases onshore, the
government said that it will introduce more “sizeable” and “bigger” measures to support growth. Some
of the measures mentioned include allocating funds to help middle-income earners, streamlining export
processes and reducing import duties on a range of goods12
.
The significant drop in global oil prices, however, complicates fiscal matters. Government revenues,
particularly non-tax revenues, are closely linked to movements in global oil prices which will be
impacted by the drop (Figure 21). The drop in oil prices and weaker activity on account of the
COVID-19 outbreak could, according to Finance Minister Sri Mulyani Indrawati, increase the 2020 fiscal
deficit to 2.2-2.5% of GDP from the budgeted 1.76%. Despite this, we think there is room for additional
fiscal support: the legal limit for the fiscal deficit is 3% of GDP and the central government debt to GDP
remains well within prudent levels at ~30% of GDP (Figure 22).
Bank Indonesia cut its policy rate by 25bp at its 20 February meeting and signaled that it has room to
reduce interest rates further. With expectations that the US Fed will cut its policy rate further this year,
BI has significant room to ease. We expect a cumulative 50bp in rate cuts for the remainder of H1 2020.
However, the volatility in the currency will likely act a limiting factor to further rate cuts. In order to ease
transmission issues and provide timely credit to businesses and households, a step-up in coordination
between BI, the government and the OJK (the Financial Services Authority) would be appropriate.
12
Indonesia Plans New Stimulus Package to Counter Virus Threat (2), Bloomberg, 3 March 2020.
-60
-40
-20
0
20
40
60
2003 2005 2007 2009 2011 2013 2015 2017 2019
Figure 21: Non tax revenues and oil prices
Non tax revenues
Indonesia crude oil prices
%YoY
Source: CEIC; Mizuho Bank
20
22
24
26
28
30
32
2010 2012 2014 2016 2018
Figure 22: Central government debt%GDP
Source: CEIC; Mizuho Bank
MI200311
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Appendix 1: ASEAN-6 exports to and imports from China (Average of 2016-2018)
ASEAN-6 exports to China mln USD % of total ASEAN-6 imports from CHN USD mln % of total
Electrical machinery and equipment 45,338 27% Electrical machinery and equipment 65,926 31%
Mineral fuels, mineral oils and
products18,794 11% Nuclear reactors, boilers, machinery and mechanical appliances, parts37,787 18%
Nuclear reactors, boilers, machinery
and mechanical appliances, parts14,257 9% Iron and steel 11,934 6%
Plastics and articles thereof 10,164 6% Mineral fuels, mineral oils and products 7,672 4%
Rubber and articles thereof 8,941 5% Plastics and articles thereof 7,560 4%
Optical, photographic, measuring,
precision, medical instruments7,724 5% Articles of iron or steel 6,974 3%
Organic chemicals 6,547 4% Optical, photographic, measuring, precision, medical instruments4,370 2%
Animal or vegetable fats and oils 4,566 3% Organic chemicals 4,267 2%
Edible fruit and nuts 3,759 2% Vehicles other than railway or tramway rolling-stock, parts and thereof4,046 2%
Natural or cultured pearls, precious
stone, precious metals etc3,373 2% Aluminium and articles thereof 3,767 2%
Wood and articles of wood 3,318 2% Miscellaneous chemical products 3,226 2%
Ores, slag and ash 2,959 2% Knitted or crocheted fabrics 2,685 1%
Miscellaneous chemical products 2,868 2% Articles of apparel and clothing accessories 2,652 1%
Copper and articles thereof 2,417 1% Furniture; bedding, mattresses, cushions; lamps 2,474 1%
Cotton 2,344 1% Inorganic chemicals; organic or inorganic compounds of precious metals, of rare-earth metals, of radioactive elements or of isotopes2,375 1%
Iron and steel 2,127 1% Man-made filaments 2,160 1%
Pulp of wood or of other fibrous
cellulosic material1,983 1% Man-made staple fibres 2,157 1%
Vehicles other than railway or tramway
rolling-stock, parts and thereof1,865 1% Paper and paperboard; articles of paper pulp 1,962 1%
Footwear, gaiters and the like 1,571 1% Cotton 1,877 1%
Cereals 1,441 1% Fertilisers 1,726 1%
Source: WTO, Mizuho Bank
Note: Based on 2-digit HS2007 classif ication
Source: WTO, Mizuho Bank
Note: Based on 2-digit HS2007 classif ication
MI200311
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