Singapore and Hong Kong will be the most impacted amidst pandemic: Moody's

Both markets are deemed export-dependent.

Singapore and Hong Kong are expected to struggle the most economically in the Asia-Pacific region due to the COVID-19 pandemic, according to a Moody’s report. This was attributed to the strict social distancing policies and closures of non-essential businesses, which contrasts the open nature of their economies.

“The very open nature of the Hong Kong and Singapore economies makes them more vulnerable than others in the region. Korea and Thailand face considerable risk as well in the near term,” said Steven Cochrane, chief APAC economist at Moody’s.

Even as these markets’ economies are expected to recover in 2021, it still faces two uncertainties as recovery accelerates.

The first is whether supply chains are able to fully return to the region as a critical driver of growth, and whether global investment may work to bring supply chains closer to final markets. The second is whether a rising debt load throughout the region will weigh on the pace of economic growth as households and industries work to manage their increased debt.

“The depth and length of economic distress differ across the region, but no APAC country is avoiding recession. China and much of APAC experienced declines in GDP in the first quarter of this year. China is beginning to rebound in the current quarter, but the rest of the region will endure a decline in the second quarter as well,” Cochrane said.

Singapore, along with Japan, Taiwan and Thailand are projected to suffer modest declines in 2020 compared with 2019.

Cochrane added that another reason why Singapore and Hong Kong will be the worst-hit economies is their export exposure. These two markets have the largest export exposure at around 180% of GDP.

“As a result, these economies are extremely vulnerable to downswings in global trade flows and tend to thrive when the global economy is on an upswing. Both economies underperformed through 2019 as US-China trade dampened global demand. Vietnam’s economy is next in line, with exports forming around 100% of GDP,” he stated.

In addition, Singapore and Japan are projected to face the slowest paths to recovery as both economies were weak prior to the onset of COVID-19.

Japan has been in recession since Q4 2019 following the October hike of its value-added tax and, in that same month, the unfortunate arrival of Typhoon Hagibis on Honshu near Tokyo, whilst Singapore’s growth rate already was near zero in Q4 2019 and declined in the Q1 2020.

“Singapore is among the most export-dependent countries in the region. It was first weakened by the impact of the US-China trade war and then went into a tailspin with the loss of trade with China in January and February, and the rest of the world in March and April. Japan and Singa-
pore will require the broad global economy to run at full speed before they reach new peaks,” Cochrane explained.

However, both countries’ strong fiscal and monetary policy responses will help stabilise their paths this year, but Conchrane warned that neither will truly recover without the global economy—including China, Europe and North America—leading the way.