Corona crisis challenges Asian economies

The Asia-Pacific region, which is spoiled by high growth rates, is not spared from the COVID-19 pandemic. The International Monetary Fund among the regions worldwide only forecasts positive economic growth of 1% for Emerging and Developing Asia in 2020. However, a strong recovery of 8.5% is expected to begin in 2021 (worldwide 2020: -3 percent). The major economies in China (+1.2 percent) and India (+1.9 percent) will remain the drivers in 2020.

The countries of Asia have increased their financial stability after the 1997 Asian crisis, and there is no high risk from public debt. Household debt, on the other hand, can inhibit consumption in individual cases; it is relatively high in relation to income in South Korea and Thailand. Informal workers in India, Indonesia and the Philippines are particularly vulnerable to the crisis. 

"In India, there is a risk of bankruptcy among small businesses and extreme dislocation on the job market," reports Boris Alex, GTAI correspondent in New Delhi. "Around eighty percent of the workforce is employed in the non-formal sector".

Governments focus on short-term anti-crisis measures 

The states’ response to the crisis has been differently successful: While China quickly got the infections under control with sharp restrictions, South Korea and Taiwan have mastered the medical crisis very well in a global comparison without major restrictions on freedom of movement. You are now switching to growth. The restrictions on freedom of movement are most severe in India, Malaysia and the Philippines.

So far, public money has mainly flowed into short-term measures to mitigate the crisis, particularly liquidity protection and social programs. There are no great opportunities to be expected from stimulus packages. "There will probably not be a large stimulus package in China like in the times of the financial crisis," said Stefanie Schmitt, GTAI correspondent in Beijing. The debt should be kept under control. Japan has announced one of the largest measures packages in the world, consisting largely of direct crisis support for companies.

Infrastructure programs are expected in countries such as Vietnam, Malaysia, Singapore and Hong Kong later in the year. However, participation opportunities for German companies are likely to be slim. However, one could benefit from the purchase of premiums products, like vehicles in South Korea for example. The “Made In Germany” image remains strong; The German crisis response is viewed differently by a few Asians from other western countries and is sometimes viewed with skepticism.

The trend towards relocating production from China is intensifying 

The crisis is accelerating two structural trends in Asia: the reorientation of supply chains and the presence of China abroad, including the backlash against it. Due to the trade conflict and for cost reasons, buyers were already looking for alternatives to China (China + 1 strategy) before the corona crisis. Dependency on a single country for primary products and critical goods is increasingly perceived as a vulnerability. The trend is towards diversification of supply chains and the winners are the countries of Southeast Asia. Vietnam is the main focus: this year the free trade agreement with the EU comes into force. India has also intensified its efforts to attract foreign investors.

Taiwan has had great success with a corporate recovery program in 2019, and Japan has announced a similar strategy as part of the anti-corona package. Australia wants to attract more manufacturing again, but at the same time raises barriers to Chinese investment. German companies remain loyal to China, if only because of their great importance as a sales market. The country currently wants to focus more on the internal market and less on exports. “In the case of silk road projects, the corona crisis could lead to stops and delays in the short and medium term. However, Beijing will stick to the initiative and could be a welcome partner for countries in difficulty with its package solutions,” said Lisa Flatten, coordinator for the New Silk Road at GTAI.

Medical technology and digitization are crisis winners 

There are currently no clear opportunities for German companies in individual sectors. In many countries, the need to catch up in the healthcare sector has become clear and the demand for medical technology is likely to increase. However, developments to the contrary have also been recorded, for example due to the complete slump in medical tourism in Thailand. 

The winner of the crisis is digitization across industry boundaries. The platform economy is experiencing a boom that may also be sustainable in part. In the healthcare sector too, digital solutions are being given a boost by the crisis. 

The prospects for the automotive industry are currently bleak, but are likely to brighten up quickly. The luxury segment is already doing well in China and South Korea. However, electromobility is slumping in China.

"German carmakers who jumped on the electric drive trend are now more affected than carmakers who continued to rely on traditional drives," said Corinne Abele, GTAI correspondent in Shanghai.

The demand for machines and systems will initially remain weak across the region. The construction industry can benefit in part from infrastructure and housing construction programs, but there are also delays in previously planned government projects. Some Southeast Asian countries are also struggling with the absence of international tourists. “In Thailand, tourism accounts for 20 percent of GDP. There have been many layoffs since March, and the informal sector is also feeling the effects, ”reports Thomas Hundt, GTAI correspondent in Bangkok. 

GTAI is the foreign trade and inward investment agency of the Federal Republic of Germany. The organization advises foreign companies looking to expand their business activities in the German market. It provides information on foreign trade to German companies that seek to enter into foreign markets.