Today we are pleased to present a guest contribution by Calla Wiemer (President, American Committee on Asian Economic Studies).
Asian economies have been weathering the pandemic very differently. At one extreme, the Philippines saw GDP contract by 9.5 percent in 2020, while at the other, Bangladesh logged growth of 3.8 percent. This piece draws highlights from a 3-part series posted on the Asia Economics Blog which assesses various channels of economic impact of the pandemic and considers fiscal and monetary policy responses within the context of policy space. 1
The virus itself appears to be a rather weak channel of impact on GDP growth. To be sure, China, Taiwan, and Vietnam all had low incidence of infection combined with decent GDP growth given the circumstances. Yet Thailand showed low infection incidence as well, but with GDP contracting by 6.1 percent, and Bangladesh with moderate incidence nevertheless achieved the best GDP performance in the region.
Mobility loss emerges as a clearer channel of impact on GDP growth, as conveyed in Chart 1. The Philippines and India lie at the negative extreme for both variables with mobility loss at over 40 percent. At the opposite extreme, Taiwan and Vietnam incurred mobility loss of less than 10 percent in conjunction with positive GDP growth.
Data sources: Mobility loss based on “retail and recreation” and “workplaces” indicators, Google; GDP growth, IMF World Economic Outlook.
Export decline as a channel of impact appears mixed, although the fit is close at the extremes. The Philippines and Thailand suffered the worst hits to exports with reductions of around 20 percent in 2020 due to their heavy reliance on services exports – diverse in form for the Philippines and concentrated in tourism for Thailand. China, Taiwan, and Vietnam all managed positive export growth in support of their positive GDP growth.
Those few governments with space to do so mobilized fiscal policy in a big way, as shown in Chart 2. Most, however, were bound by budgetary constraints. Singapore with its long history of budget surpluses was able to draw on accumulated funds to raise expenditures by nearly 80 percent without concern for borrowing costs. Hong Kong, too, with negligible government debt increased expenditures greatly. Elsewhere, budgets were tighter, especially given revenue fall-offs that exceeded 10 percent for India, Indonesia, the Philippines, and Vietnam.
Data source: IMF Fiscal Monitor.
Before the pandemic, all but Taiwan were running primary budget deficits, but most still within range to maintain stable debt-to-GDP ratios. In 2020, deficits spiked beyond this sustainability threshold, with Taiwan again the lone exception. For the most part, budgets look to be headed back to a sustainable track within a few years, China standing out as the exception. China’s primary deficit reached 10.4 percent of GDP in 2020 with the course seemingly set for it to far exceed a 2.8 percent sustainability threshold for some time to come.
By way of monetary policy support, Asian central banks have lowered policy rates and engaged in asset purchases. A broad-based uptick in central bank asset growth rates for 2020 is visible in Chart 3. In the Philippines and Indonesia, central banks took the extraordinary step of lending directly to the government to fund public spending needs. In Bangladesh, the central bank intervened heavily in the foreign exchange market to absorb surging net foreign currency inflows.
Data source: IMF Monetary and Financial Statistics.
Ample monetary policy space has been afforded by expansionary policy in the US that imparts liquidity to global capital markets. Against this backdrop, Asian economies have run balance of payments surpluses with central banks leaning against currency appreciation or in a few cases leaning into slight depreciation. In Bangladesh, India, and Singapore, reserve accumulation as measured on the balance of payments exceeded 20 percent of reserve stocks.
Should inflation pick up in the US and the Fed then respond by tightening monetary policy, Asian central banks would come under pressure to follow suit to forestall capital outflows. The race is on, then, to move forward jointly in vaccinating populations so that we may all pull out of the crisis together with normalization of macro policies in sync.
This post written by Calla Wiemer.
1. Asia Economics Blog, “Economics of the Pandemic, 2020”
Part I: Covid Cases, Mobility Loss, and Exports
Part II: Fiscal Policy
Part III: Monetary Policy
↩
Terrifically informative post by Doctor Wiemer. And I noticed the Asian Economics Blog has lots of enlightenment to be found as well. Things are always complex and continuously moving in that part of the world.
https://www.reuters.com/world/asia-pacific/concern-grows-over-indonesias-regions-delta-variant-ravages-java-2021-07-14/
https://www.cidrap.umn.edu/news-perspective/2021/07/indonesias-surge-intensifies-other-asian-nations-set-daily-covid-records
A PhD from U-W Madison seems like a slight food stain on the record, but we’ll overlook that for the time being. My Dad always said after my Mom got her nursing degree and became an RN that “It was the college degree that ruined her”. I mean, what can you do??
Let us not forget that Indonesia is among the beneficiaries of Sinovac and Sinopharm vaccines. Sadly, China’s vaccines aren’t much good, despite the steady stream of propaganda to the contrary. Indonesia and Thailand are re-vaccinating medical workers who have had the full China vaccine treatment, using the AstraZeneca and Moderna, because medical workers were dying from Covid after getting Chinese vaccines – https://news.yahoo.com/covid-chinas-vaccine-success-waning-234324407.html Malaysia is switching to Pfizer.
Apparently, there was resistance within the Thai government to using non-Chinese boosters because “…it is an admission that Sinovac can’t give protection and it will make it harder to find an excuse,” – https://www.bangkokpost.com/thailand/general/2143875/sinovac-fear-after-memo-leaks
https://news.cgtn.com/news/2021-07-17/The-rich-world-s-debt-to-island-states-11YkzJax2iA/index.html
July 17, 2021
The rich world’s debt to island states
By Jeffrey Sachs and Isabella Massa
Hurricane Elsa’s appearance in the Caribbean this month, far before the usual onset of the Atlantic hurricane season, reminds us of what awaits the world’s small island developing states (SIDS) in the years ahead. These states are already suffering the devastating effects of climate change, and will now need to spend heavily on repairs and measures to build resilience. Rich countries and their fossil-fuel companies contributed overwhelmingly to the problem, so they should help cover the SIDS’ soaring climate costs.
Owing to their unique circumstances, the world’s 58 SIDS – 38 of which are United Nations members – have belonged to a special group within the UN since 1992. In a new study of this cohort for the UN, we identified three overarching structural vulnerabilities facing the SIDS today.
First, because most SIDS have small populations (below one million), their exports are concentrated in just a few activities. When COVID-19 struck, SIDS dependent on tourism were hit much harder than most other countries, particularly the developed economies. In 2020, the GDP of Barbados, Fiji, and the Maldives declined by 17.6 percent, 19 percent, and 32.2 percent, respectively, compared to 3.5 percent in the United States. Many SIDS also experienced a sharp drop in international remittances – another key source of sustenance.
Second, many SIDS tend to incur higher shipping costs, because they are far away from the world’s main shipping routes and must purchase in smaller volumes than larger economies can. The island states in the Pacific Ocean are the most remote. In the Indian Ocean, the Maldives and the Seychelles are far from shipping routes and main markets. And in the Caribbean, the ranges differ, with some islands located much closer than others to U.S. ports.
Lastly, because of their physical geography, SIDS have extraordinary environmental vulnerabilities and face special risks, including food insecurity. In a large country, a disaster like a hurricane or a drought usually affects only one region directly; but in a small island nation, the disaster often hits most or all of the country simultaneously, straining both the emergency response and the costs of economic recovery.
Moreover, acute dependence on food imports has left many SIDS with epidemics of diabetes and obesity – a problem that should be regarded as an indictment of the global food industry, and as a geographical vulnerability of these countries.
Elsa was hardly a one-off event. Human-induced climate change is already leading to rising sea levels and more intense hurricanes, floods, droughts, forest fires, heat waves, and crop failures. The land areas of several Pacific Island countries have already shrunk, pointing to the possibility that their populations eventually will need to migrate elsewhere. In the Maldives, where fresh water has always been scarce, groundwater sources are under continual threat from rising sea levels and changing rainfall patterns.
And in the Caribbean, high-intensity hurricanes, such as the three that hit in 2017, not only cause death and destruction but also leave countries with massive recovery bills and heavy debts. By strengthening the physical infrastructure, these countries can become far more resilient. Such resiliency has a very high social return, but also high up-front capital costs.
In a recent International Monetary Fund report measuring the extra costs facing small developing states (SDS) in meeting the Sustainable Development Goals, all but two of the 25 countries studied are part of the SIDS group. Placing special emphasis on the extra costs of building sustainable infrastructure in these countries, the IMF concludes that the 25 SDS cannot fund the SDGs on their own. The international community’s pledge to “leave no one behind” in achieving sustainable development can be fulfilled only by providing extra development financing for the SIDS.
Yet despite their urgent and rapidly growing needs, many SIDS are ineligible to borrow on favorable terms from official development banks and newly created special climate funds. They are being told that they are too rich, even as they suffer one devastating environmental disaster after another, and even as the pandemic continues to cripple their economies and endanger their populations….
https://www.wsj.com/articles/u-s-weighs-new-sanctions-on-irans-oil-sales-to-china-if-nuclear-talks-fail-11626692402
July 19, 2021
U.S. Weighs New Sanctions on Iran’s Oil Sales to China if Nuclear Talks Fail
U.S. negotiators have been working with international partners to revive the 2015 deal limiting Tehran’s nuclear program
By Benoit Faucon and Ian Talley – Wall Street Journal
London and Washington – The U.S. is considering tighter sanctions on Iranian oil sales to China as a way to encourage Tehran to conclude a nuclear deal and raise the costs of abandoning stalled negotiations.
U.S. negotiators have been working with European and other international partners in Vienna since April to revive the 2015 deal that limits Iran’s nuclear program in exchange for an easing of broad sanctions. As those talks falter, the U.S. is running through options intended to induce Iran to keep negotiating or punish it if it doesn’t, according to U.S. officials and people familiar with the matter.
One plan being drafted would choke off Iran’s swelling crude-oil sales to China, the country’s main client, through fresh sanctions targeting the shipping networks that help export an estimated one million barrels a day and bring critical revenue to Iran, the officials said.
The new steps would take place if nuclear talks fail, the officials said. The plan would involve the aggressive enforcement of current sanctions already banning dealings with Iran’s oil and shipping industry through new designations or legal actions, the officials said. In the past, the U.S. has, for instance, sanctioned the captain of a Syria-bound Iranian crude tanker and obtained the seizure of fuel cargoes Tehran was sending to Venezuela.
“There is not much left to sanction in Iran’s economy,” said one of the U.S. officials. “Iran’s oil sales to China is the prize.” …
So you’re proud of China providing revenues to one of the world’s largest harbors for terrorism?? Another great step for the “pacifist” leaders of Beijing. Feeding funds to terrorism. Fanning the flames of terrorism. Did you kidnap any independent minded Uyghur people from their families today?? Come on, steal an Uyghur from their parents/husbands/children today. Where’s your sense of fun if you can’t kidnap an Uyghur from their family?? Show all the world the peaceful Chinese spirit by giving us a satellite photo of the genocide camps Han Chinese are running. Just for fun.
Iran may be a rouge regime but they will find someone to buy their oil. Of course economic reality has never been your forte. Hey have fun on your hot date with Econned.
@ pgl, Why do I get the strangest feeling your own children surpassed you in emotional maturity years ago ??? How old are you now, and you keep talking about “taking sides”?? What age do most people give up on that refrain?? It’s like you’re doing a 1960s Tommy Smothers routine.
pgl – thanks for installing the sauna… or is your head just regularly filled with hot air?
@ pgl
“rouge regime”??? I’m not familiar with this terminology. Is this connected to the “Birds of Prey” comic book series, or…… ??
“…fuel cargoes Tehran was sending to Venezuela.”
Now there’s a story.
http://www.xinhuanet.com/english/2021-07/19/c_1310070336.htm
July 19, 2021
Nearly 1.46 bln doses of COVID-19 vaccines administered in China
BEIJING — Nearly 1.46 billion doses of COVID-19 vaccines have been administered in China as of Sunday, the National Health Commission announced on Monday.
[ Along with the nearly 1.46 billion doses of Chinese vaccines administered domestically, another 570 million doses have been distributed internationally. A number of countries are now producing Chinese vaccines from delivered raw materials. ]
http://www.xinhuanet.com/english/2021-07/19/c_1310070636.htm
July 19, 2021
China, ASEAN open new chapter in common development, prosperity
Thanks to the China-ASEAN Free Trade Agreement (CAFTA), more commodities from ASEAN countries, ranging from agricultural products such as mango, durian and coffee to primary and intermediate products like rubber and paper, have entered the Chinese market. In 2020, China and ASEAN became each other’s largest trading partners for the first time.
By Wang Yaguang and Mao Pengfei
BANGKOK — The 10-member Association of Southeast Asian Nations (ASEAN) and China on Monday celebrate the 30th anniversary of the establishment of their dialogue relations.
Since the relations began in July 1991, bilateral trade volume had soared from less than 8 billion U.S. dollars to more than 680 billion dollars last year. With such a strong foundation, the two sides have pledged to enhance cooperation in all sectors to open a new chapter in ASEAN-China common development and prosperity.
The Thai-Chinese Rayong Industrial Zone in Thailand’s Rayong Province has been a miniature and fruit of such win-win cooperation. Established in 2006 and now home to 160 overseas companies, the plant boasts 40,000 local workers, mostly in automobile, electronics and machinery sectors.
Himile Group, a major tire mold supplier headquartered in China, chose to set up a factory in the zone in 2014.
“Most of our clients, the world’s top tire producers, have built their production bases in ASEAN countries. We want to move closer to them … to serve the Southeast Asian market,” said Qiu Jinliang, managing director of Himile’s Thai branch.
Over the past seven years, the plant’s production and sales capacity has expanded 60 percent annually, Qiu said, noting that “the biggest challenge now is our production capacity falls short of clients’ demand.”
In the past year and a half, despite the COVID-19 outbreak and related travel restrictions, the industrial zone managed to attract 27 Chinese companies to invest there, said Zhao Bin, president of the Thai-Chinese Rayong Industrial Realty Development.
With more than 650 million consumers and being a supply chain hub for major industries, ASEAN is becoming an important strategic market for Chinese businesses, Thailand’s Siam Commercial Bank said in a research report.
In 2020, China’s foreign direct investment (FDI) in ASEAN countries surged 52.1 percent year-on-year, bucking a global downward trend. Meanwhile, ASEAN investors continue to see a rosy prospect in China for its solid post-pandemic recovery and the new development paradigm of “dual circulation,” with the bloc’s investment in the Chinese mainland jumping 50.7 percent in the first half of 2021, according to China’s Ministry of Commerce.
Bilateral trade has also thrived over the years, buoyed by a friendly relationship between the two sides and the China-ASEAN Free Trade Agreement (CAFTA).
Thanks to the CAFTA, more commodities from ASEAN countries, ranging from agricultural products such as mango, durian and coffee to primary and intermediate products like rubber and paper, have entered the Chinese market. In 2020, China and ASEAN became each other’s largest trading partner for the first time.
In May, Cambodia exported its first batch of fresh mangoes directly to China as part of increased agricultural cooperation between the two countries.
Cambodian Agriculture Minister Veng Sakhon expected the country’s fresh mango exports to China to total 100,000 tons this year.
“We will continue to enhance cooperation with China, increasing exports of our products to the Chinese market,” he said.
Trade volume between China and ASEAN maintained a robust growth in 2021, surging 27.8 percent year-on-year in the first six months, according to China’s customs statistics.
In November last year, the Regional Comprehensive Economic Partnership (RCEP) agreement was signed by its 15 participating countries including China and the 10 ASEAN members, creating a massive free trade zone covering roughly 30 percent of the world’s gross domestic product, trade and population….
An outstanding analysis of lockdowns effects on the pandemic and the economy.
https://astralcodexten.substack.com/p/lockdown-effectiveness-much-more
It’s long but really worth the time.
http://www.xinhuanet.com/english/2021-07/19/c_1310070336.htm
July 19, 2021
Nearly 1.46 bln doses of COVID-19 vaccines administered in China
BEIJING — Nearly 1.46 billion doses of COVID-19 vaccines have been administered in China as of Sunday, the National Health Commission announced on Monday.
[ Chinese coronavirus vaccine yearly production capacity is now 5 billion doses. Along with the nearly 1.46 billion doses of Chinese vaccines administered domestically, another 570 million doses have been distributed internationally. A number of countries are now producing Chinese vaccines from delivered raw materials. ]
If FOX can treat vaccinated employees who disclose their status different from those who do not (jamming sticks into the noses on those who have not provided proof of vaccination, every morning), then I am sure that FOX would have no problems with any other places that make a similar torture discrimination between how the (proven) vaccinated and the non-vaccinated are treated. Right FOX?
https://www.cnn.com/2021/07/19/media/fox-vaccine-passport/index.html
Apparently Hannity does not want to become a co-defendant in that billion dollar lawsuit for spreading lies about vaccines:
https://www.cnn.com/videos/media/2021/07/20/sean-hannity-vaccines-covid-19-vpx-new.cnn
Calla Wiemer’s nice work reminds me of the IMF analysis of countries caught in the Asian currency crises extending from about 1996 through 1998. Thailand, Malaysia, Indonesia and Korea were most affected. Vietnam less so. Joseph Stiglitz complained of the the IMF responses, extending the complaint to the response to the Argentine economic that emerged after. Kenneth Rogoff in turn responded by severely and wrongly criticizing Stiglitz.
As for the effected Asian countries, least for Vietnam, the crises were sharp enough to have long lasting growth effects. Also the crises made for China building what would become a 4 trillion dollar currency reserve (5 trillion counting the sovereign wealth fund). Chinese policy makers learned from the Korean experience in particular.
[ I will in time set down references. ]
https://fred.stlouisfed.org/graph/?g=Fy2p
August 4, 2014
Real per capita Gross Domestic Product for Korea, Thailand, Malaysia and Indonesia, 1992-2004
(Percent change)
https://fred.stlouisfed.org/graph/?g=Fy2u
August 4, 2014
Real per capita Gross Domestic Product for Korea, Thailand, Malaysia and Indonesia, 1992-2004
(Indexed to 1992)