Asia Weekly Coronavirus Watch: Increased normalization but uncertainties still loom

• To date, the reported cases of Covid-19 has amounted to over 5 million globally. New infections stem mostly from Latin America, especially in Brazil and Chile, while the contagion is gradually stabilizing in Asia, Europe and the US. Against this backdrop, the world is increasingly moving out of mobility restrictions. For example, Japan lifted the state of emergency in Osaka, Kyoto and Hyogo on May 21st citing slower spread of Covid-19. Also, while India extended lockdown on May 18th to May 31st, it relaxed control over states business, industry, public transport and other economic activities.
• Against the backdrop, China has shown continued normalization of economic activities, with coal consumption and steel productions remaining on the high level. However, the momentum in cultural and entertainment remained sluggish, pointing to a possible long-term adjustment of the service sectors. The business sentiment on the manufacturing sector still remained very volatile. Going forward, sagging external and uncertain international environment persistently weigh on the economic recovery, especially for sectors such as semiconductor and information technology that have higher exposure to overseas markets.
• For the rest of Asia, Japan recorded 3.4% fall in Q1 GDP on sluggish consumption, which took the hit from both social distancing measures and consumption tax hike. As business sentiment and labor market conditions deteriorated in April and May, more scars are expected to unveil in Q2 figures in Japan. Thailand also reported contraction in growth momentum with Q1 GDP shrinking by 1.8% as mobility restrictions and travel bans weigh on the tourism sector.
• In the financial market, uncertainties over the pandemic containment and rising geopolitical tension has weighed on most Asian equity markets. In terms of forex, Asian currencies also generally weakened against the greenback.
• During last week, the Two Sessions started in China. According to the State’s Council’s Government Work Report, the central government will raise the general public deficit target to at least 3.6% of GDP, issue another one trillion yuan new “special treasury bond” and increase the local government special bond issuance quota to 3.75 trillion yuan to boost to the economy. On the monetary side, China made clear that it will continue to cut RRR and interest rate and ensure that the growth rates of the broad money supply and total social financing are higher than those of last year. This will guarantee financial liquidity and lower funding cost to support the real economy. The government will also strengthen financial support by extending loans and making special repayment schedule to help the small-sized firms in order to stimulate the economy out of the economic woes of the Covid-19 outbreak.

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