For all the time spent trying to identify “V-shaped” recoveries or worse-faring “U” and hapless “L,” letters may not be the most enlightening way to understand the rebound from the coronavirus pandemic. Perhaps a better analogy is a squiggly line, with economic life rolling forward and looping back as countries cycle in and out of lockdowns.
This is nowhere more apparent than in Asia, where data have been patchy. The Bank of Japan’s quarterly Tankan survey, released Wednesday, showed confidence among the biggest manufacturers sinking to levels unseen since the global financial crisis. Drill deeper, however, and the same report shows that plans for capital spending jumped 3.2%, twice as much as forecast and a nice turn from the decline in the previous quarter. That sign of resilience won’t prevent Japan from having a down year, given the projected 20%-plus plunge in gross domestic product during the second quarter. But you can find reason for hope amid all the despair.
South Korea is showing a similar pattern. Exports fell 10.9% in June, an unhappy number — except when measured against the 23.6% dive in May. Semiconductor shipments were flat, while strong demand from China should put a floor under this vital piece of Korea Inc. Imports of chip-making gear rose 140%, after a 168% surge in May. Someone clearly smells demand. Seoul still clings to its official forecast of a 0.1% decline in GDP this year. Compared with some places, that would be stellar.
In China, meanwhile, factories are cranking to life, but retail sales are going south and services industries are still below par. GDP is likely to expand 2.1% this year, says Bloomberg Economics, one of the few major economies to advance. Six months ago, growth that slight would have been regarded as a disaster. Given gloom in the U.S. and Europe, though, anything north of zero is a break.
The shape of recovery across the region will depend on a number of questions: what a country is good at, who it trades with, whether infections are rising or falling and the fiscal and monetary policy responses. Will lockdowns be nationwide or pocket-sized? For example, the Philippines eased restrictions in the capital of Manila but tightened curbs in Cebu. In Indonesia, where limits on activity vary across the archipelago, Jakarta’s transition from a partial lockdown has been extended. Curbs on activities in parts of Melbourne have been reinstated, while Sydney’s reopening proceeds.
When recessions arrive, people always try to jam them into Vs, Ws, Us, Ls or even bathtubs, Ayhan Kose, a senior World Bank forecaster, told a webinar at the Australian National University’s Centre for Applied Macroeconomic Analysis last month. “Let’s make no mistake about the shape of the recovery,” he said. “It’s going to be a painful one.”
Indeed, the region’s economic hit this year will be the biggest in living memory, the International Monetary Fund forecast Wednesday, with GDP slipping 1.6%. As bad as that sounds, it’s better than the world’s projected 4.9% overall contraction.
Looking only at the broad direction of economic recovery, though, risks missing the slivers of positive data. Those will be among our earliest indications of what’s actually working, when everything has been thrown at the wall. Because this pandemic will be with us for some time, taking stock quickly is essential. Governments can’t manage limitless budgets forever, nor can most central banks endlessly print money. So please put the alphabet soup away. The dish obscures more than it illuminates. –Bloomberg
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