UNEVEN economic growth in Asia is likely to persist for some time, while it is uncertain if the current recovery in some Asian economies may be sustained.
Such a scenario points to various vulnerabilities arising from record budget deficits, rising debt levels, geopolitical risks and uncontrollable virus infections.
Malaysia’s economy may have posted a smaller decline of 2.7% in the third quarter (Q3) compared with a contraction of 17.1% in Q2.
The continued decline in Q4, against the re-implementation of the conditional and enhanced movement control orders, is likely to be larger than the drop in Q3, said Socio Economic Research Centre executive director Lee Heng Guie.
For Malaysia, the worst economic contraction in Q2 may represent a trough but the resurgence of the third wave of virus infections will temper consumer sentiment as businesses, especially in travel, tourism, hospitality and retail, are still struggling to survive.
While Budget 2021 contains several measures to help small businesses, over 30,000 small and medium enterprises (SMEs) have folded up since March.
It is possible that many businesses will be permanently shut by Chinese New Year; tourists have stopped coming in while many people have lost their jobs or had their incomes cut.
“A lot of SMEs are closing down and in the process of settling loans, payments and dealing with their creditors, ’’ said SME Association of Malaysia president Datuk Michael Kang.
It is safer to do more contingency planning for next year than be comfortable with “rosy” projections such as those by the International Monetary Fund or World Bank for growth expected at 6.3% to 7.8%.
Of course, there is still hope for some growth in Q4 based on higher exports and manufacturing activities.
The risks to growth for Malaysia arise from the fact, among other things, the economy has benefited in limited ways, for instance from the rubber gloves industry, while the government faces resource limitations; those who dare to spend freely may be mostly civil servants getting regular salaries.
“The contrast with once flashy emerging markets is stark, ’’ said Bloomberg Quint columnist Daniel Moss.
Economies in the north (of Asia) are ascendant and their once faster growing southern neighbours are mired in a “deep funk”.
For the first time in 20 years, Indonesia has fallen into recession, with two consecutive quarters of negative growth at 3.49% in Q3 and 5.32% in Q2.
India, for the first time in its history, is predicted to have entered a technical recession in the first half, possibly contracting by 8.6% in Q2 (July to September) of the current financial year, from a 23.9% drop in Q1.
Against a fall of 12.2% in Q2 for the Thai economy, the sharpest in 22 years, Q3 showed a lower decline of 6.4%.
It is not only the willingness but also the ability of Asian governments and central banks to further stimulate growth.
With so much additional spending, most countries already have record budget deficits, and to stimulate spending, they would also have record low interest rates.
Indonesia has forecast a fiscal deficit (budget deficit including borrowing and other liabilities) of 6.34% of gross domestic product (GDP) for 2020; Malaysia expects its fiscal deficit to hit 6.0% of GDP in 2020.
The risk is that countries which are too slow in reversing these trends in record deficits and very low interest rates may see pressure on their currencies, said Fortress Capital CEO Thomas Yong.
Rising debt levels across all countries may lead to more downside risks if economic growth continues to stay subdued.
Indonesia’s debt to GDP is projected to increase to 37% in 2020 from 36% last year; for Thailand, it is at 39.2% in June compared with 34.5% in the previous quarter.
Malaysia’s debt-to-GDP ratio is allowed to go up to 60% as part of the temporary measures to fight Covid-19.
Adding to the uncertainty are geopolitical risks especially in continued tensions between China and the US.
Every move will be closely watched if there will be additional barbs or proper negotiations that will be conducted under the new president, following a most damaging trade war last year.
So far, China seems to be the only clear beneficiary from this episode of pandemic.
Even so, as it revs up its manufacturing sector to meet demand from locked down people all over the world, it runs the risk of such demand not being sustainable.
Overall, if these risks can be managed, economic growth prospects look set to improve next year, as is in the base-case expectations for most, said RHB Research Institute chief Asean economist Peck Boon Soon.
It is a given that year 2020 will be a recession year.
With a low base, recovery of trades and internal consumption against huge stimulus packages, it should be a stronger year ahead for Asia, said Areca Capital CEO Danny Wong.
We just hope for the coronavirus attacks to ebb.
Yap Leng Kuen is the former business editor of StarBiz. Views expressed here are the writer’s own.