SMALL open economies are likely to suffer more than large continental economies during the pandemic, which is expected to exert a greater "growth shock" than both the Asian and global financial crises, Bank of America Global Research said.
With a deeper global recession expected in 2020, the investment bank said its regional growth forecast is now 0.3 per cent, down from 1.6 per cent, due to the "delayed policy response to contain Covid-19".
Citing examples in a recent report, BofA said Singapore's economy is likely to contract by 5.7 per cent, Thailand's by 6.8 per cent and Hong Kong's by 4.9 per cent, noting that these economies are set to decline "more visibly than elsewhere in Asia" in 2020.
"Such economies are more export-driven and more vulnerable to virus threat due to stronger ties with the rest of the world. In addition, they also have more exposure to tourism, which is going through the toughest time in decades," the report said.
Similarly, Asean countries with fresh lockdown and extensive social distancing measures will likely see sharper than expected slowdowns, BofA said.
On top of weak external outlooks, BofA is expect tightening of social distancing measures as well as tighter tourism restrictions to take bigger tolls on Malaysia with a 3.4 per cent contraction, Philippines with a 2 per cent contraction and Vietnam with a 0.2 per cent contraction. Indonesia could see growth of 1 per cent as the recovery is likely to be more U-shaped, BofA said, noting that policy response has been lagging.
Noting that all govenments have adopted multiple measures to offset the downturn, BofA said each country has its own policy objective function, while others have limited room for maneuvering. This implies a different pace or style of policy easing by design.
The bank's Asia Economic Research Team then rated countries with an average score of both monetary fiscal policy mix. In this survey on policy commitment, the team found that Singapore is a "frontrunner" in this regard, while Malaysia, Philippines and Thailand are "followers". Indonesia and Vietnam are considered "laggards".
"These commitment scores are to be interpreted in the local and historical context policy adjustment within each economy. It shows relative to all remaining policy options, how quickly and intensively a country has moved in fiscal and monetary terms, without any prediction on net final policy effect," the report said.
At this juncture, it may be too early to predict who the "final winners" will be, the bank said, but the results highlight something else: the question of which economy with subpar policy stimulus could jeopardise their growth and employment recovery.
While indicators are showing that laggard economies could face significant growth shocks, frontrunners are not guaranteed to exit the shock unscathed either, BofA said.
"But it doesn't have to end poorly. We believe growth disappointment will likely trigger more policy easing, or a 'catch-up' in the policy race, to help boost growth and stabilize labor market. We also expect all economies to calibrate the intensity and coverage of their economic stimulus policies as the need for stronger stimulus surfaces," the report said,