You Want the Truth? You Can't Handle Total Lockdown

(Bloomberg Opinion) --  

Second waves of coronavirus outbreaks may not mean reimposing blanket restrictions on activity in Asia. The region’s economies, which have seen more than half a century of growth grind to a halt, won't be able to handle it. That means the future will be speckled with pocket-size lockdowns.

Leaders are wary of repeating the huge contractions in commerce that came with complete closures. Singapore, better placed than many of its neighbors thanks to four stimulus packages and substantial financial reserves, saw a dramatic decline in gross domestic product in the second quarter. The city-state’s economy shrank at a whopping 41.2% annualized rate from the previous quarter, in the first major data release since Friday’s election. The dismal reading is likely to be the first among many double-digit declines expected across the region in coming weeks. 

For some months, Singapore has been warning its residents that business conditions could get worse before they improve. The government has been taking the reopening gradually; the central business district is far from full capacity. Borders are sealed to most travelers and fines await those who transgress social-distancing laws. Restaurants can open, but must stop serving alcohol by 10:30 p.m. and strict limits are placed on the number of people per table.  

A small, fairly open economy that’s a center for trade and multinational companies, Singapore has always been acutely vulnerable to ebbs and flows  of global commerce. “We expect the recovery to be a slow and uneven journey, as external demand continues to be weak and countries battle the second and third waves of outbreaks by reinstating localized lockdowns or stricter safe-distancing measures,” Singapore’s trade and industry minister, Chan Chun Sing, said in a Facebook post.

Across the region, governments will be introducing variations of targeted lockdowns in response to recent spikes. Chunks of Melbourne have been shuttered and Victoria, the state encompassing the city, closed its borders. Other parts of the country remain a going concern, though the northern state of Queensland has listed several zip codes in Sydney as hotspots that will require visitors from those suburbs to quarantine before entry. Treasurer Josh Frydenberg said Monday Australia’s effective jobless rate is about 13.3%, rather than the official 7.1%; he doesn’t sound too keen on drawing the curtains on the entire country. 

In the Philippines, metropolitan Manila is partially reopening even as other parts of the archipelago are walled off. Japanese officials, meanwhile, have avoided calling for broader restrictions in response to a Tokyo outbreak that’s concentrated in nightclubs and a couple of other clusters. Authorities have assured that the medical system is not under strain. Speaking in the northern island of Hokkaido on Saturday, Chief Secretary Yoshihide Suga called the infections a “Tokyo problem,” according to Japanese media.

In Hong Kong, a surge of infections has prompted the government to reintroduce some restrictions adopted earlier in the year, but not all of them. There will be fines for not wearing a mask, restrictions on the numbers of people allowed to gather and early closing of restaurants for in-house dining.  

While the global economy is likely to see a bounce in the third quarter, reflecting the resumption of business, the price of earlier shutdowns was huge. Output may not return to its pre-pandemic levels until 2022, according to the International Monetary Fund, and governments need to think about how to sustain a functioning society for the long haul. The World Health Organization said Monday the coronavirus is unlikely to disappear in coming months and that it would unwise to bank on a vaccine being widely available immediately. 

It’s one thing to go from fairly reasonable levels of economic growth to disastrous slumps once in a few generations. It’s quite another to keep enduring multiple rounds every year or two. That throws up particularly dire possibilities in developing Asia, where poverty could increase for the first time in a few decades. 

While most countries have embarked on significant fiscal and monetary stimulus, few possess deep capital markets with reserve currencies. Indonesia’s rupiah, the Philippines’s peso, Thailand’s baht and Malaysia’s ringgit can’t be printed indefinitely. Interest rates are approaching zero, if not already effectively there, constraining room for traditional maneuvering. And all those supplementary budgets, appropriate as they were, have to be paid for. 

The IMF, which spent most of the pandemic urging nations to undertake a combined budgetary and monetary stimulus, rather than letting central banks do all the lifting, is getting worried about long-term solutions. “The need for continued fiscal support is clear, but this begs the question of how countries can finance it without debt becoming unsustainable,” top fund officials Vitor Gaspar and Gita Gopinath wrote in a blog Friday. 

Broad and deep restrictions now have a high threshold in Asia. That’s a reality the world's leaders should consider, too.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.

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