Nonetheless, the economists argue that the 2Q2020 has marked the trough in GDP performance for most of AxJ, which data shows largely came in April-May 2020. They expect 3Q2020 to be one of continued recovery for economies that have successfully dealt with Covid-19. July manufacturing Purchasing Managers’ Index (PMI) continued to rise in AxJ while AxJ export numbers through June remained constant, with South Korea’s export value and volume recovering 93% and 95% respectively.
In fact, growth momentum has persisted even in countries where Covid-19 cases have begun rising again. Weekly power demand is back in positive territory in India while weekly unemployment levels have remained at pre-Covid levels despite a spike in April to June 2020. Meanwhile, Indonesia and the Philippines have seen second-order derivative improvements up to June.
“Despite concerns about the impact from rising daily new cases and retightened containment measures, our initial reading of 3Q20 indicators suggests that a gradual cyclical recovery and not a double-dip is under way. Our base case is for the quarterly GDP profile for AxJ to show a gradual cyclical recovery in the next 12-18 months,” say the economists.
The reason for this optimism is the relatively strong AxJ response to Covid-19, with aggressive tracing, contact tracing and containment effectively controlling infections in most countries. Aware of the economic ramifications of a full-scale lockdown, policymakers will also avoid a repeat of such a scenario going forward, instead using localised or selective lockdown measures to minimise downward pressures on growth.
A strong policy response to the Covid-19 recession will also aid cyclical recovery. About 9% of GDP has already been announced in AxJ to combat the impact of Covid-19. With fiscal policy being the more effective policy tool, AxJ fiscal deficits are expected to rise to around 12.7% of GDP in 2020, exceeding both the 8.1% recorded in 2019 and 10.3% in 2009
