from the webinar organised by GTR and IHS Markit Economic Impact of Covid19 on Trade and Global Supply Chains – Executive Director and Asia-Pacific Chief Economist, IHS Markit – Rajiw Biswas.
A deep recession in the World’s economy is expected
In 2020 the World’s economy is expected for 3 percent negative growth, very deep recession is expected in the US -5.4 %, Eurozone -4.6%, China’s economy will only grow by 2%.
The momentum of downturn will be the deepest on the middle of the year and because of prospect of new drug or vaccine, the world should recover quite swiftly in 2021. All of the global economies will be damaged during 2020 .
Asia Pacific will be showing less impact as China, Vietnam and other surrounding countries are showing signs of controlling the virus and starting to normalize economic activity faster than the Europe and the US.
Heaviest Hit industries: Service sector shows a very big slump. World Oil prices have collapsed – massive wave of distress to the US oil and gas firms, if the WTI price of oil stay at 30$ for 12 months, 40% of US oil/gas firms will become insolvent. Auto Sector: 2020 will go down by 21.7 % (which is more than during 2008/2009).
Tourism and airlines industries will be hit by this crisis as well.
Real GDP growth in Asia-Pacific: Mainland China is expected to grow only 2% during 2020. Economy is expected to return to expansion in the second quarter of 2020, downturn risk will be concentrating on the demand side both domestically and externally. Export-related manufacturing will be hit by global economic shock and the pace of recovery in private consumption is likely to be gradual, however strong rebound is expected in 2021 – 6.1%, the growth is expected to become gradually slower in 2022 – 5.6%. India is expected to have negative growth of -1% in 2020 because of the lock-down but rebound quite swiftly in the upcoming 2-3 years. South Korea did very well in dealing with the COVID-19 situation, therefore, about 0% of the neutral growth is expected in 2020. South Korea is expected to be one of the least hit countries.
Vietnam – economy is expected to grow by 3% this year and will rebound even more in 2021. Alongside with South Korea, Vietnam is one of the few countries which so far controlled COVID-19.
Japan – deep recession in 2020 but expected to control the COVID crisis therefore the economy will recover as well in 2021.
Indonesia - the most worrying country as there are still more and more sick patients there so the situation is unclear on how bad the virus will hit the health system, peak is not there yet. Other ASEAN countries are doing not too bad at the moment and seems to be over the peak already
A lot depends on China, the supply chain will not be the same and presumably a lot of imported goods will be coming from the ASEAN countries to China instead of the EU and US. Therefore more regional supply chain model is expected.
In general, the situation in the APAC region is looking pessimistic for this year but the economists remain quite positive about the rebound in 2021.
Impact of exporting SMEs?: Sadly, a lot of insolvencies inevitable. Only the strongest will survive despite the government support in almost all countries.
What are the impacts on supply chain?
The first sign of this crisis was the shut down of China, and we have seen that most of the countries notice that they are directly dependent on China’s manufacturing. Naturally there will be rethinking of supply chains, governments will play more important role especially in strategic industries. Especially medical supplies will most likely be produced domestically or near the borders.
Over the next 5 years a lot of re-positioning of supply chains is expected.
What countries are going to become more and more important in the APAC region in the upcoming 10 years?
India, Indonesia and China as they have huge consumer markets.