Asia supply chains: a potential shock to growth
- Small, open economies such as Singapore, Vietnam and Malaysia are the most exposed to final demand from the US, Europe and China. This makes them the most vulnerable to the coronavirus growth interruption. Thailand and Hong Kong have the largest exposure to tourism (as a % of GDP) and face the risk of a wipe-out of tourism revenue for some time.
- China is a main contributor to Asia’s supply chains for complex products. Production shutdowns in China would therefore have a tangible economic impact on its supply-chain partners, both upstream and downstream.
- Combining the supply and demand exposures, we assess an external shock equivalent to that of the global financial crisis would subtract regional growth by 2.7 percentage points (ppt), while a worse-than-GFC shock could see Asia’s growth cut by 4.2ppt, similar to the total revisions made to our growth forecast since the start of COVID-19.
- The short-lived production shutdown in China means that the supply shock for the region will be dwarfed by demand disruptions. We expect the latter to add to disinflationary pressure in Asia that allows central banks to continue to ease policies this year.
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