HONG, KONG/TOKYO – Asia’s biggest economies are already feeling the brunt of new coronavirus COVID-19.
Key gauges for manufacturing in Australia and Japan have fallen while early export orders for South Korea show a slump in Chinese demand.
The warning signs come as finance chiefs from the Group of 20 (G20), the world’s 20 biggest economies, meet this weekend in Riyadh for the first time since the virus was first detected in humans.
How to cope with the economic fallout from the disease will dominate those discussions, Bank of Japan Gov. Haruhiko Kuroda said in Tokyo ahead of his departure for the talks.
Manufacturing activity in Japan plunged amid recession risks in the world’s third largest economy. The Jibun Bank Japan Manufacturing Purchasing Managers’ Index registered 47.6 for the sharpest deterioration in conditions in more than seven years.
The epidemic has prompted economists to forecast recession in Japan’s economy, which was already reeling from an October sales tax hike and a typhoon.
In Australia a gauge of manufacturing activity fell further into negative territory as effects of the virus have spread, along with a hit from massive bush fires.
The CBA Flash Composite PMI fell to 48.3 in February from 50.2, the steepest rate of reduction since the series began in May 2016.
While early South Korea trade figures for February indicated some improvement, an increased number of working days from a year earlier glossed over the impact the virus is already having.
Exports during the first 20 days of the month rose 12 percent from a year earlier. Shipments to China, South Korea’s biggest trade partner, fell 3.7 percent during the first 20 days. The early reading is typically held up as a bellwether for global trade given South Korea’s central role as a manufacturer and exporter of electronics, ships and automobiles.
Economists warn the fallout of COVID-19 is only just beginning.
“The global economy and financial markets have not seen the full impact of the coronavirus outbreak yet,” Citigroup economists led by Catherine Mann wrote in a note titled “Waiting for the Global Impact” that warned of a “dramatic” first quarter slowdown in China.
Slumping activity will add to pressure on governments and central banks to respond with more support for their economies, while also raising doubts about their capacity to do so.
Central banks in Asia have already stepped up action, with Indonesia, the Philippines and Thailand cutting rates recently, and others like Singapore planning significant fiscal stimulus. China has lowered a range of policy rates this month. Speculation is rising that the Bank of Korea could also deliver a cut next week.
Still, global debt is at record levels and interest rates in the world’s biggest economies are already at historic lows.
“If growth continues to slide, a key question for the G20 will be whether its members can coordinate a response,” according to Bloomberg Economics’ Tom Orlik.
“Against a backdrop of resurgent nationalism, fractious trade disputes, and limited policy space, common purpose might be difficult to achieve, that’s another reason to be pessimistic on the outlook,” he wrote.