Update Country Report Maldives 06 Jul 2020

• Singapore's general election will result in another victory for the incumbent People's Action Party (PAP), but its next generation of leaders will be confronted by an unusual array of policy challenges.
• Following the easing of lockdown policies across the region, fresh coronavirus (Covid-19) outbreaks are emerging. To date, governments are responding through localised quarantine policies, in an effort to contain the economic disruption.
• Inflation data for June may begin to highlight a firming of demand as economies slowly normalise; some central banks in the region, such as that of China, may have to grapple with high inflation sooner than widely expected.

It will be no surprise when Singapore's ruling People's Action Party (PAP) coasts to another victory in the general election on July 10th. The party has ruled the city-state since its independence in 1965, with huge parliamentary majorities and a share of the popular vote never smaller than 60%. In the previous election, in 2015, the PAP was returned with 83 of 89 contested seats and a vote share of 69.9%.

Looking for a strong mandate in Singapore

However, in Singaporean politics, the margin of victory will be what counts. The PAP is seeking a strong mandate, as it aims to transition to a new "fourth generation" of leaders soon after the election. The prime minister and PAP general-secretary, Lee Hsien Loong, has signalled he would like to step down before his 70th birthday, in February 2022. His assumed successor is the deputy prime minister, Heng Swee Keat, who doubles as finance minister. A dip in the PAP vote share to near 60% would be a weak foundation for Mr Heng to build his premiership upon; anything lower than that threshold would represent a crisis, by the standards of local politics.

The election will be fought primarily on the government's handling of the coronavirus epidemic. The record has been mixed for an administration that prides itself on technocratic competence. A failure to control an outbreak in crowded foreign-worker dormitories forced the government to introduce economically costly "circuit-breaker" or lockdown measures in early April, from which a phased exit began in June. Singapore still does not have the epidemic under control: confirmed cases averaged over 200 a day in the week to July 4th. Singapore's rival city-state, Hong Kong, has managed the pandemic more successfully.

Yet, as we predicted in June, several factors will likely ensure that this mixed record is not too costly for the PAP at the polls. Firstly, the government has launched stimulus packages equivalent to almost 20% of GDP, among the largest in Asia; these include direct cash handouts and wage subsidies. This has helped to contain job and income losses. Secondly, it has at least ensured limited virus transmission in the community, where voters reside, with the vast majority of Singapore's nearly 45,000 cases having been recorded in the dormitories. Thirdly, as we have seen elsewhere, the uncertainty thrown up by the pandemic may hold advantages for incumbent administrations. As a result, while we are predicting a drop in the PAP's vote share from 2015, it will still retain overwhelming support-and a supermajority-in parliament.

Singaporean politics may become more interesting and unpredictable subsequent to the election. Signs have emerged that opposition parties are becoming more effective: every seat will be contested in this election, for only the second time, and the newly established Progress Singapore Party (PSP), which has the support of Mr Lee's brother, Lee Hsien Yang, has had an impact on the campaign. Meanwhile, for the PAP's fourth-generation leadership, significant economic-policy challenges will await once the effects of stimulus wear off. There will also be more local questioning of Singapore's open economy model and immigration policy at a time of widening global protectionism.

Localised lockdowns prevail

In the week starting June 28th, 13 countries in Asia registered a greater increase in coronavirus cases than the previous week. India, where transmission of the disease shows no sign of slowing, registered the highest increase in cases, followed by the Philippines and Indonesia. The two South-east Asian countries have seen their outbreaks worsen after they relaxed containment measures in June.

The Philippines recorded its largest jump in cases on July 5th, when new infections spiked by over 2,300 to a total over 44,000. The country began easing its lockdown on June 1st out of concern for its economic performance and, since then, transmission of the disease has expanded as people have returned to work and public spaces. The majority of new cases have been in the national capital, Manila, where living conditions and public transport are most crowded. Government officials have stated there is a possibility the capital may be placed on lockdown again if new infections continue to accelerate and hospitals reach capacity. Although the central city of Cebu went into lockdown for a second time in mid-June after its outbreak worsened, we believe the authorities will refrain from shutting down the capital again, and will instead continue to shut down the worst-affected sub-districts (31 villages in the capital were placed under lockdown on June 4th).

As the most populous country in the region, Indonesia has suffered the largest coronavirus outbreak in South-east Asia. Infections rose by 1,607 on July 5th to over 63,000 cases. Although the country has not imposed a strict lockdown, it did implement social distancing measures, which were gradually lifted during June. The country announced on July 5th that a trade deal with Australia, another country that saw a significant spike in cases last week, had gone into effect, as the two countries seek to lend some strength to their economies.

Community transmission of the coronavirus has taken hold in the southern Australian state of Victoria, which recorded the greatest rise in infections since March, prompting the government to place nine housing blocks under lockdown on June 4th, and close the border with the neighbouring state of New South Wales from June 7th.

The week ahead in data

Inflation data will be among the more prominent releases this week in Asia. China, Philippines and Taiwan will report consumer price index (CPI) figures for June; we believe we will begin to see the first evidence of a firming of demand on prices as economies normalise. Looking ahead, higher inflation may be a challenge that some central banks, such as that of China, will have to deal with sooner than suggested by currently subdued prices. However, for the moment, the focus for most will remain on supporting the economy. Of the monetary-policy decisions due this week, we expect more loosening in Malaysia and Sri Lanka, but no change in Australia.

A clutch of countries, including China, India, Indonesia, Malaysia and Taiwan, are due to release their latest figures on foreign-exchange reserves. In June Asian currencies continued to post gains against the US dollar, buoyed by renewed global investor interest in riskier assets. Such inflows will help to supplement foreign-exchanges reserves in the region, giving countries more ammunition with which to support their currencies when the US dollar regains strength.