Posted on 24 Apr 2020
The effects of COVID-19 are hitting ASEAN economies, especially on the tourism and trade sectors. Uncertainty is driving negative sentiment and is eventually affecting investment and output. Supply disruptions mostly from China will continue to have an impact on the supply chain and will continue to disrupt production in the short term.
China is the world’s second largest economy and was the first victim of COVID-19. The Chinese accounted for 19.8% of the global tourist market in 2018 and its share of international trade had risen two-fold, from the contribution of world market of 5% in 2003 to 10.6% in 2018.
In comparison, the China construction sector seems to be less affected when compared to other sectors, a decline by 0.1% from the baseline. This partly could be a result of the carry-over of the continued expansion in construction sector in 2019 and the fast build-up of the new hospitals and medical centers to cure infected people. Motor vehicles and parts saw to get high impact from the outbreak, 1.8% deviation from baseline.
The negative effects of quarantine arrangements in many countries would have an impact on labour supply. Manufacturing has been hit hard. Among ASEAN countries, the Chinese and global economic difficulties due to COVID-19 outbreak results in weaker demand for goods, disruption to China’s supply chains, shortage of intermediate goods and raw materials. This would have an impact on manufacturing production and exports.
Singapore, Malaysia and Thailand are heavily integrated in regional supply chains and will be the most affected by a reduction in demand for the goods produced within them. Indonesia and Philippines have been increasing supply chain engagement and will also not be immune. Vietnam is the only new ASEAN member integrated into supply chains with China and is already suffering severe supply disruptions.
The restriction in movements and lockdowns in some countries resulted in delay in construction activities within. Singapore construction projects, which use prefabricated pre-finished volumetric construction (PPVC) modules will likely suffer delays because of the lockdown since 80% of the PPVC used for construction come from factories in Johor Bahru, Malaysia. Moreover, most of the construction workers are made up of foreigners and most of them went back to their countries during the lockdown.
In case of Thailand, while there is no lockdown policy mandating the stoppage of construction projects yet, some construction activities still go on, but with more cautious working operation to prevent the virus spread. Similarly, manufacturing operations needing tools, machines and equipment from China and other countries, have scaled down their production in response to the limited supply of the needed goods and materials. Shortage of staff and labourers who returned to home provinces or countries is also causing construction delays. Philippines and Vietnam have encountered the same issues during the outbreak.
As for automotive sector is expected to be hit badly due to global market uncertainty since 2019. Overall production has fallen 4.8% y-o-y to around 4.16 million units, according to the ASEAN Automotive Federation. From early 2020, ASEAN’s vehicle sector is facing shutdown mainly due to government imposed restrictions and disruption in supply chain as well as low sales.
Indonesia and Thailand are ASEAN’s two major automotive production hubs, relying on exports around the region. These hubs are expected to be severely impacted. Thailand’s car export may shrink further due to the COVID-19 impact, by 3-5% y-o-y, according to Kasikorn Bank Research. Car export in Indonesia already fell by over 21% in the first two months in 2020 (before the outbreak got serious). Domestic sales are expected to fall sharply in March and to deteriorate further in the second quarter of the year.
During the critical period on COVID-19 outbreak, steel inventories in many countries have been rising as many mills continued to operate through the extended shutdown period. Other manufacturers have been negatively affected by restriction in transportation. Deliveries of steel and manufactured goods are subsequently being delayed and are experiencing difficulties in their supply chains.
Even if the movement of controls have been released, China’s steel product inventories, however, have seen to continue to build sharply, including construction steel bar, hot rolled coil used in cars and home appliances. Steel stocks held by Chinese traders hit above 20 million tonnes as of February 2020, according to Mysteel. However, demand for steel is stagnant as there was no activities going on.
The question is, where will all the steel go to? Should ASEAN and other nations brace for another round of export tsunami from China?
Source:SEAISI
