After almost four months since the start of the Covid-19 pandemic, we can draw the following conclusions about the reaction of Asian countries to the pandemic and the consequences that arise from an economic and business perspective.
– Global supply chains depend on China. This first conclusion was revealed during the period in which the epicenter of the pandemic was China, especially during the month of February. Companies around the world were in suspense for weeks due to the lack of components produced in China, especially in sectors such as textiles, electronics or automotive. The gradual reopening of factories in China has partially alleviated the problem, but it has become clear that this country's role in the global supply chain is crucial. Taking into account that component stocks do not usually have a capacity of more than a month, the effects that the coronavirus is going to have on global production systems are still uncertain, but many companies are rethinking their supply strategy in the face of the danger that It means depending so much on a country.
– Fiscal discipline is a resource of enormous value in difficult times: After the Asian financial crisis that began in Thailand in 1997, many countries in the region, especially in Southeast Asia, had to implement very strict fiscal discipline with the aim of reactivating their economy, in addition to correcting the structural problems they suffered until that date. For this reason, the effects of the 2008 crisis in Asian countries were much smaller than in the United States or Europe.
This fiscal discipline was relaxed from then on, and to Japan's already well-known debt problem we must add China's growing indebtedness, especially in recent years. South Korea, in this Asian context, has more room to apply economic stimulus measures as it has lower debt levels.
Globally, the debt of Asian countries is lower than that of OECD countries, which makes it easier for larger budgets to be allocated to combat the economic crisis that is being generated by the coronavirus.
Public debt/GDP
Japan 238
China 60.9
South Korea 43
India 68.5
Thailand 43
Fuente: FMI
– We must invest in technological solutions to combat the pandemic: In Asia, very interesting technological solutions are being applied to combat the coronavirus, such as the use of robots to disinfect hospitals, the use of artificial intelligence to analyze clinical conditions, the monitoring of contaminated people through mobile applications, etc In other words, technology reduces the economic impact of the coronavirus.
In addition to the introduction of technological solutions to combat the virus, one of the advantages that Asian countries generally have compared to the rest of the world is the high penetration of digital innovation among their citizens. Thus, in countries such as Japan, South Korea or China, the level of use of digital applications by the population is very high, making it easier to control the pandemic.
– Prevention and rapid detection avoids economic costs: South Korea is one of the best countries in the world to face pandemics, as has been demonstrated after these months in which the number of cases and deaths has been much lower than that of any other country. This is due to a combination of different factors, among which are a sophisticated industry in the field of biotechnology, rapid detection of cases, monitoring and isolation of those infected, an enormous number of tests on the population and a great capacity in its healthcare sector.
In this way, it has been possible to flatten the curve of infected people without massive confinements and without paralyzing the economy. Obviously some of the solutions are not applicable to the rest of the countries in the world and on the other hand the Asian countries have an advantage because they had to face the SARS epidemic in 2003, but the good practices that have been implemented in the country They should be taken into account to avoid further damage to the economies of other countries.
– The services sector and SMEs suffer much more acutely from the economic crisis generated by the coronavirus. Although this is applicable to the rest of the countries in the world, in Asia SMEs, especially in the service sector, are being seriously harmed due to confinement and social distancing measures. Taking into account that the liquidity resources of SMEs do not usually exceed 3 months, the destruction of employment among this group will be important and painful, especially in sectors such as tourism, hospitality and catering, and retail sales.
– Large Asian companies could be in a better position than North American or European companies to overcome the crisis. Although we must be cautious because Asian multinationals have great exposure to global demand that is currently at a minimum, there are two aspects in which East Asian companies may have advantages over their competitors in the market. rest of the world.
Firstly, the indebtedness of companies in Asia, in general and with exceptions such as Chinese public companies, is lower than that of European or North American companies, so they will be in a better position to withstand the crisis situation. crisis during the coming months.
On the other hand, although at the time of writing this article there are significant restrictions on freedom of movement in Asia (especially in Singapore, Japan, India and other Southeast Asian countries), the economy of the main Asian countries functions in generally in a more dynamic way than in the case of Europe or the United States. 4
In conclusion, the economic effects of the coronavirus will be important for all countries in the world without exception, but in light of the data we have to date, Asian countries are in a better position to recover in the medium term once the situation subsides. current.
Amadeo Jensana, Director of Economy and Business of Casa Asia
