Five Economic Charts to Watch: Asia Pacific (COVID-19 Edition)

The severity of the COVID-19 outbreaks and the economic impact has varied from country to country within the Asia Pacific region. For some countries, the pandemic is adding to economic problems that started in 2019.

Significant Slowdowns and Negative GDP Growth Forecasts

For the fastest-growing economies in the Asia Pacific region—China, India, and Indonesia—the 2020 growth outlook has been significantly reduced because of the COVID-19 pandemic. The consensus estimates for analysts surveyed globally by FactSet show China’s economic growth slowing from 6.1% in 2019 to 1.6% in 2020 and India’s growth easing from 4.2% last year to 1.8% this year. Indonesia will see its slowest annual growth in more than two decades with growth slowing from 5% in 2019 to just 0.4% in 2020. At the same time, the economies of South Korea, Australia, and Japan will all contract in 2020.

China's Consumers Aren't Consuming

China bore the brunt of the impact from COVID-19 in the first quarter and industrial activity is already starting to pick up again. However, the country will find it difficult to export its goods as the rest of the world continues dealing with economic lockdowns well into the second quarter. In addition, Chinese consumers are only slowly starting to resume spending. In April, nominal retail sales of consumer goods fell by 7.5% compared to a year earlier. This is an improvement over the 20.5% drop in January/February and the 15.8% decrease in March, but well below the average monthly growth of 8.1% that we saw in 2019.

The Outlook for Hong Kong Remains Bleak

Even before COVID-19 forced a national lockdown, the Hong Kong economy was in recession as the result of last year’s widespread pro-democracy protests and the U.S.-China trade war. On a year-over-year basis, the economy contracted by 2.8% in the third quarter of 2019 and 3.0% in the fourth quarter. In the first quarter of 2020, the economy shrank by 8.9% compared to a year ago. The outlook remains grim through the first half of 2020 as efforts to contain the coronavirus in China have limited cross-border travel, which has hurt tourism, retail, and other businesses. Retail sales fell deep in the red throughout 2019 and this trend has persisted into 2020. In April, nominal retail sales were down 36.1% compared to a year earlier, while the volume of retail sales (real) was 37.5% below last year.

Australia’s Record Expansion Comes to an End

It appears certain that Australia’s record 29-year economic expansion has come to a crashing end. The economy shrank by 0.3% in the first quarter, but according to FactSet Economic Estimates, this will be followed by an 8.5% contraction in the second quarter. In April, the Westpac-Melbourne Institute consumer sentiment index fell to 75.6, its lowest level since the 1990-91 recession; the index rebounded in May to 88.1 but remains in recession territory. Businesses are also extremely pessimistic with both the manufacturing and services PMIs showing sector contraction with readings of 41.6 and 31.6, respectively. After cutting interest rates three times in 2019, the Reserve Bank of Australia (RBA) instituted two more 25 bp cuts in March, bringing the target cash rate to .25%.

Japan’s Recession Is Expected to Worsen

The Japanese economy slipped into recession in the first quarter. Real GDP shrank by an annualized quarterly rate of 2.2% to start the year, on the heels of a 7.2% decline in the fourth quarter of 2019. The first quarter contraction was mostly due to a 3.3% decline in household consumption, although the 21.9% drop in exports was also a negative factor. Confidence is weak among both consumers and businesses according to two of the key components of the Cabinet Office’s index of leading indicators. Both the sales forecast component of the survey of small businesses and consumer confidence fell to historical lows in April, although consumer confidence saw a slight rebound in May. Unfortunately, things are expected to get worse before better. The consensus forecast of analysts surveyed by FactSet projects a 20.2% contraction in real GDP in the second quarter; for the year, Japan’s economy is expected to shrink by 4.8%.