The economic impact of Covid-19 may be centred on the Chinese mainland but ripples are spreading around the region, according to new data that revealed grim numbers at the heart of the viral outbreak and deteriorating sentiment elsewhere.
Purchasing managers’ indices for Hong Kong and China fell to all-time lows in February, consistent with a deep recession, while the figures pointed to a sharper slowdown in Australia, Japan and elsewhere.
The latest data show why the US Federal Reserve made an emergency cut in interest rates on Tuesday and will heighten pressure on Asian central banks to follow suit as the scale of the economic shock becomes clearer.
But the scale of the fall in Hong Kong and mainland China highlights the limitations of economic stimulus if the coronavirus cannot be brought under control and large-scale outbreaks develop in other countries.
“I think the base case is still three to four months of depressed activity with quite a strong recovery,” said Frederic Neumann, co-head of Asian economic research at HSBC in Hong Kong. “But that is predicated on the virus disappearing or a stabilisation in public apprehension about it.”
Hong Kong’s PMI fell to the lowest level since the series began in 1998 with a reading of 33.1, while China’s services PMI fell to 26.5 in February from 51.8 in January, highlighting the impact of quarantines and reduced travel. Readings above 50 indicate an increase in business activity and readings below mean a contraction.
Bernard Aw, principal economist at IHS Markit, said there was a deeper story within the Chinese manufacturing PMI, with companies reporting depressed current conditions but a strong backlog of orders to address once factories restart operations.
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“At the moment there is the issue of a supply chain disruption and to a smaller extent a demand disruption,” said Mr Aw. “But we also have a future output index, which we take as an indicator of business confidence, and that is at a five-year high.”
In several countries, the coronavirus shock is coming on top of already weak conditions. Japan’s services PMI fell from 51 in January to 46.8 in February. The economy suffered a sharp contraction in the fourth quarter of 2019 following a rise in consumption tax.
Hong Kong was also struggling with the fallout from political protests and a US-China trade war even before the coronavirus hit.
“I think Hong Kong’s situation is a bit unique,” said Mr Neumann. “We already were in recession before the coronavirus erupted. Also in Hong Kong, the memory of SARS runs quite deep.”
