As Covid-19 intensifies, moving from locked down Asia to a global pandemic that has closed most of the world, what is the likely domino effect and impact on Asia? 

The IMF says the pandemic is already driving the global economy into recession, while the World Economic Forum says the forced shutdowns across Asia in February and March are paralysing economic activity across the region, and closing factories and manufacturing. Purchasing Managers’ Index (PMI) surveys across Asia show a significant contraction to record lows not seen since 2009. 

Asian governments have drawn up monetary and fiscal stimulus measures, which spend between 1% to 11% of GDP, but these mostly address corporate funding, banking systems and household cash support needs in the immediate term. But what is likely to happen to Asia if Covid-19 persists until December 2020 or longer? The outcome is sure to be devastating. 

Governments are likely to increase their massive spending and run huge budget deficits, to avoid or reduce bankruptcies and debt defaults. The military is likely to be called in to assist with law enforcement – and even essential services – as the pandemic spreads across hospitals, police and fire stations, airports, army bases, prisons and public transport systems.

Public health systems will be strained even further in handling the increasing numbers of infected people. Companies, continuing to suffer from supply chain disruptions (raw material and component shortages), will halt investment, retrench staff, place more on leave of absence and comply with orders to allow near-100% staff telecommuting. 

Productivity will suffer, as it will be mostly online activities that are relied on. Airlines and hospitality will experience near-zero travel and tourism. Retailers will be badly affected by being told to close except for food and pharmacy stores. Only essential services will be allowed to operate, so smaller companies and start-ups lacking investor funding or government support will become bankrupt before the pandemic is over.

Consumers will continue to face worsening debts, stricter social distancing measures, food hoarding and the closure of schools and most shops. The current unemployment rate of 4.1% will more than double. Low-income families will continue to receive direct cash transfers, food assistance, employment aid (even to farmers) and health insurance. Children will stay at home for online learning, and the informal sector of freelancers and gig workers will lose the most as they rely on cash-based sectors for work. 

By the time the pandemic is over, it will take years for Asia to gradually recover. Until then, Covid-19 will continue to destroy lives, companies, strategic plans and budgets. 

Lawrence Yeo is founder and principal consultant of AsiaBIZ Strategy, a Singapore-based management consulting firm providing Asia market research, business strategy development and export/FDI promotion services.

This article first appeared in the April-June edition of fDi Magazine.