While retrospective studies of the great financial crash in 2008 showed that both developed and emerging economies were impacted equally hard, it’s fair to say that the latter recovered far quicker and achieved more substantial growth in the subsequent decade.
This is typical of most financial crashes, but the recent socio-economic impact of the coronavirus pandemic is continuing to buck this trend.
More specifically, relatively high-growth nations such as China, India and Brazil have seen their respective GDPs dwindle significant against the backdrop of falling remittances, tightening global credit conditions and a collapsing exports market.
Despite this, the entities and their currencies have showcased sustained resilience in recent weeks, but why is this the case and it can be sustained in the longer-term?
Appraising the Immediate Impact of Covid-19 in Asia
In some respects, it makes sense that Asian nations should have struggled during the Covid-19 pandemic, with the economies of nations such as Thailand and Malaysia reliant on non-remote industries such as tourism.
In the case of Malaysia, for example, the sustained decline in international travel is expected to trigger a GDP contraction of up to 0.8 points in 2020, with a total potential loss of RM17.3 billion forecasted for the year.
Industries in Asia are often heavily reliant on tourism and entities such as the commodities market, which has also declined sharply as a result of falling demand, border closures and increasingly stringent social distancing measures.
This is part of a widespread decline in world trade, which is expected to fall by as much as 32% in 2020 as Covid-19 pandemic continues to disrupt normal economic activity and the importing and exporting of goods overseas.
So, Why Have Asian Economies Remained so Resilient?
Despite these on-going challenges, there’s no doubt that most Asian economies, and corresponding currencies such as the Philippines peso, have showcased genuine resilience over the course of the last few weeks.
One potential reason for this is the fiscally-prudent heritage of Asian nations, and the simple fact that most companies in this region are high-growth and considerably cash-rich.
Although this is isn’t always attractive to domestic and international investors (as it can inflate valuations disproportionately), it’s far more appealing during times of economic uncertainty as it provides a more secure source of wealth, helps to minimise risk and enables investors to weather the worst of the Covid-19 storm.
This also creates a cycle of relative growth, as a strong currency (supported by a healthy base interest rate) helps to hook overseas investors and sustain consistent capital inflows.
With these points in mind, it’s easy to see why Asian economies and currencies have remained relatively competitive in the current climate, while also understanding that a solid foundation has been laid for future growth post the global pandemic.