Update Country Report Maldives 15 Jun 2020

• Coronavirus (Covid-19) infections continue to rise in Asia, with the majority of new cases reported in South Asia.
• The Economist Intelligence Unit expects countries to proceed with the easing of containment measures in June, which will help ease supply-side constraints on economic activity. However, a recovery will be impeded by weak demand conditions.
• The emergence of a new cluster of infections in China's capital, Beijing, has highlighted the risk of a second wave in the second half of 2020.
• This week will see May trade data released for several key Asian exporters, alongside monetary policy decisions in Japan, Indonesia and Taiwan.

The number of coronavirus (Covid-19) infections continues to rise in Asia, increasing by more than 69,000 to reach over 820,000 cases as at June 14th. However, the total remains below that of North America and Europe. In the week starting June 8th, 11 countries in Asia reported a larger increase in coronavirus infections than for the previous seven days, up from nine countries the previous week.

The spectre of a second wave

Many Asian countries are easing containment measures in June following signs that their daily infection numbers have peaked. However, a new cluster that has emerged in Beijing, the national capital of China, has cast a shadow over countries' ability to prevent a "second wave". In June 11th-14th Beijing reported 86 new infections that were linked to a wholesale food market. The development will challenge the narrative put forward by the Chinese government that it can lead the way in terms of a global recovery from the epidemic. While the authorities will aim to contain the outbreak at district level, with mass testing and tracing there remains a risk that infections could spiral out of control.

Infections in South Asia continued to climb rapidly, led by Pakistan and Bangladesh. Governments in this region eased lockdowns in May, after they failed to bring new infections under control, and out of concern for the damage to the economy. Testing rates have expanded, which has also meant an increase in the number of patients detected. However, overall testing capacity remains relatively low, making it difficult for the government to control the spread of the virus with this method. The ongoing outbreaks in South Asia will delay the economic recovery and challenge healthcare systems. However, we do not expect the authorities to impose further nationwide lockdowns.

The week ahead

The week has begun with the release of key monthly economic figures for May from China. They showed an economy recovering at a rate faster than we expected, with industrial value added rising in real terms by 4.4% year on year. Annual contractions in investment and retail sales also narrowed. This suggests China's economic growth in the second quarter of the year will come in firmer than our current estimate of 0.1%, although developments related to a potential second wave (as noted above) raise the significant risk of disruption to that recovery in the third quarter. Our annual GDP growth forecast for China, currently at 1%, will, therefore, retain a conservative tilt.

It is a busy week for Asian trade data. According to figures released on June 15th, goods shipments from Indonesia declined in US-dollar terms by 29% year on year in May, while imports were down by over 40% as domestic demand slumped amid coronavirus-related restrictions. Japan and Singapore will publish their trade data on June 17th, with the figures likely to be worse than in April. The sharp export declines in the region make the small dip in China's exports in May all the more notable, helped by its centrality to the global medical equipment supply chain.

Several monetary policy meetings will be held this week by Asian central banks, but we believe most of the radical shifts have already been made. We believe the Bank of Japan (BoJ, the Japanese central bank) will keep its policy interest rate unchanged at -0.1% at its meeting on June 16th. Policy meetings will follow in Indonesia and Taiwan on June 18th. For Indonesia, while we do not expect a further rate reduction until the third quarter, there will likely be a commitment to expand its nascent asset-purchasing scheme, with the rupiah's recent stability providing some policy space. Asian central bankers will also be watching the testimony that the US Federal Reserve chair, Jerome Powell, is due to make to the US Senate this week.

Rounding out the week, New Zealand will report first-quarter GDP on June 18th. We estimate growth of -0.7 quarter on quarter (or 0.3% year on year) for the period. The country's management of the outbreak has been among the more successful globally, although its geographical isolation and sparse population have been helpful factors. Its GDP data for the second quarter of the year will be affected by lockdown policies, but there should be an improvement from the third quarter, with the country having exited such policies and moved to the lowest level of alert since June 8th. We forecast a 3.5% contraction in real GDP in 2020 as a whole.