Sylvia Sheng

Macroscope | Coronavirus will hit hard, but Asia’s economies can rebound on the back of strong policy support

The sharp impact of the epidemic on China’s economy will depress growth in the rest of emerging Asia via trade links and tourism flows. But quick action by central banks and policymakers will ensure the impact is temporary

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A man wearing a protective face mask walks under a bridge near Merlion Park in Singapore on February 12. The Monetary Authority of Singapore has signalled there is room for further easing in response to weaker growth prospects due to the coronavirus. Photo: EPA-EFE

Sylvia Sheng

Published: 9:00pm, 14 Feb 2020Updated: 10:14pm, 14 Feb 2020

Following a strong start to the year, Asian equity markets suffered a sharp sell-off in late January on concerns about the novel coronavirus outbreak. The Shanghai Composite and the MSCI Asia ex-Japan index declined by around 12 per cent and 8 per cent respectively during the second half of January.

However, market sentiment seems to have improved in the past two weeks after the initial shock, with regional equities recovering some of the losses.

Despite the better market performance, there is still a lot to worry about. The virus outbreak is likely to pose a significant short-term threat to China’s growth, with negative effects for the rest of Asia.

In addition to a consumption shock, production is likely to be significantly affected in the short term. To contain the spread of the virus, the Chinese government imposed widespread travel restrictions and extended the Lunar New Year holiday by three days, to February 3 nationwide. Many provinces, such as Zhejiang and Guangdong, further extended the holiday to February 10.

However, recent media reports suggest that even the delayed resumption of production is proving challenging. Many local governments reportedly require companies to have supplies for worker protection, such as masks, ready before they will approve reopening. This may be hard to achieve, at least in the next few weeks, given the nationwide shortage of mask supplies.