Asia Weekly Coronavirus Watch: Continued economic weakness amid rising second-wave contagion risks

• The infection curve has started to flatten both in Asia and the world. However, most countries are still tackling the initial Covid-19 outbreak or be cautious on a second wave of infections. On the one hand, Singapore relaxed the circuit breaker measures on May 12th and Japan lifted the state of emergency for most part of the country on May 14th. On the other hand, the emergence of a few locally transmitted cases in China has pushed the government to reimpose mobility restrictions in Jilin and carried out mass tests in Wuhan.
• Against the backdrop, China has published more data confirming the weakness of domestic demand. Retail sales and fixed asset investment contracted by 7.5% and 10.3% respectively. In Japan, deflationary pressures were clear as the producer price index (PPI) fell to -2.3% YoY in April from -0.4% in March. While Malaysia reported an unexpected expansion of the Q1 GDP growth (0.7% YoY) thanks to prompt fiscal and monetary responses, the worst is yet to arrive as mobility restrictions have been kept until May 12th as well as the very negative impact of low commodity prices.
• The higher tension between US and China has weighed on risk appetite, which has driven down most Asian equity indices except for Vietnam. In particular, the Indian market experienced a sharp sell-off as business sentiment fell to record low. As for forex markets, Asian currencies have continued to depreciate against the dollar last week.
• In response to the coronavirus threat, the Indian government unveiled a 10% of GDP support on May 13th and 15th. But the 10% stimulus includes previous measures amounting to 4.6% of GDP while new measures are only 2.3% of GDP. Still, our assessment is positive as it includes government guarantee for SME non-collateralized loans guaranteed, followed up by a target package worth 0.8% of GDP geared at the agriculture sector. Clearly, the discretionary nature of these measures is not proportional to the fall in demand. However, the targeted supports for the small firms and the agriculture sector are still helpful due to their significant roles in maintaining the jobs.

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