Eye On Asian Economies (The Great Covid Recession) 20200331 PDF

EYE ON ASIAN ECONOMIES
March 2020
The Great Covid Recession

Covid-19 obviously dominates our forecasts. All the economies we cover,
as the pandemic breaks over them, see economic growth crater. The
direct effect of the virus is just the start. With lockdowns being imposed
on the world’s demand drivers, world trade growth is about to crash. The
R E S E A R C H
speed of decline will be matched only by the freeze in trade finance that
occurred in the Global Financial Crisis. That collapsed exports and pushed
growth negative in four of the 12 Asian economies we forecast. This year
with trade and Covid combined, we forecast negative growth in eight of
12 Asian countries and both Europe and the US.
Following the GFC, world trade restarted quickly. 2010 was a bumper
year for Asian export and GDP growth. 2020 will be an easy base for year-
on-year changes. However, we warn against expecting 2021 to be a
repeat of 2010. First, on the advice of epidemiologists, we expect that
Covid will recur if social distancing is relaxed too quickly. Second, the
E C O N O M I C S
2010 rebound was vigorous because final demand had held up better
than trade. Covid is causing far greater destruction of final demand than
experienced in 2009. The 2021 Asian growth recovery we forecast is
much more muted than it was in 2010.
Covid is deflationary, collapsing commodity prices and the pricing power

of service producers. Traded goods prices will soon follow. We cut our
inflation forecasts across the board.
Central banks have deployed their entire crisis toolkits in one go. The
speed of response enables us to assume that financial crisis can be
avoided. Fiscal policy is being used without precedent. The Great Covid
Recession will still exceed the GFC in its impact on Asian economies; but
had policy been less responsive, things would be much worse.
A S I A N
Real GDP growth

2018 2019 2020F 2021F
USA 2.9 2.3 (3.1) 1.1
Eurozone 1.9 1.2 (4.4) 0.8
Japan 0.3 0.7 (3.4) 1.5
Australia 2.7 1.8 (3.1) 1.7

China 6.7 6.1 3.3 7.0
Hong Kong 2.9 (1.2) (6.0) 3.0
India¹ 6.0 4.6 2.8 7.0
Indonesia 5.2 5.0 3.4 5.2
Korea 2.7 2.0 (0.1) 2.6
Malaysia 4.7 4.3 (3.9) 4.0
Philippines 6.2 5.9 0.7 6.7
Singapore 3.4 0.7 (2.5) 5.0
Taiwan 2.7 2.7 (1.5) 2.0
Thailand 4.2 2.4 (5.0) 0.8
¹ Fiscal year starting April of captioned calendar year.
Source: CLSA, CEIC, DataStream

Eye on Asian Economies 2Q20
Eric Fishwick Contents

Head of Economic Research Foreword .......................................................................................................................... 3
eric.fishwick@clsa.com
+44 20 7614 7171 The Great Covid Recession ............................................................................................ 4
Covid assumptions: Multi-stage not single peak .................................................... 4
Anthony Nafte Mapping Covid-19 to growth: US and Europe ....................................................... 6
tony.nafte@clsa.com
+852 2600 8320
Mapping Covid-19 to growth: Commodity prices & EM demand ...................... 12
Mapping Covid-19 to growth: A hard slowdown in world trade ........................ 15
Samantha Chin Fat tail risks we hope will not be realised ............................................................. 18
samantha.chin@clsa.com
Fat tail 1: Financial instability ............................................................................ 18
+852 2600 7626
Fat tail 2: A Eurozone sovereign debt crisis ..................................................... 20
Fat tail 3: Unanchoring inflation expectations ................................................ 21
Asian growth: Worse than the GFC ....................................................................... 23
Asian inflation: Covid will be a deflationary shock .............................................. 26
Monetary policy: Ubiquitous cuts and more ......................................................... 27
Exchange rates: A mid-year USD peak .................................................................. 28
Asian forecast summary ............................................................................................... 31
Country profiles
Australia: Powerful Covid feedback loops ............................................................ 32
China: Restoring growth to trend ASAP ................................................................ 34
Hong Kong: Punch drunk ........................................................................................ 36
India: One crisis after another ................................................................................ 38
Indonesia: Commodity exposure, BoP constraint................................................. 40
Korea: Covid containment but still negative growth ........................................... 42
Malaysia: Exposed on all fronts .............................................................................. 44
Philippines: Sharp deceleration, big rebound ....................................................... 46
Singapore: Massive stimulus, still contracting ...................................................... 48
Taiwan: Dragged down by other countries’ lockdowns ....................................... 50
Thailand: Economy succumbs to Covid ................................................................. 52
Your eyes on the Asian economies
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
For important disclosures please refer to page 54.
2 eric.fishwick@clsa.com 31 March 2020

Foreword Eye on Asian Economies 2Q20
Foreword
Covid is a once in a century The Covid-19 pandemic is sweeping the world and the consequences, as economies
economic shock enter lockdown to slow the virus and reduce its mortality, represents a once in a
century economic shock. Neither governments nor central banks can mitigate this.
Both demand and supply are falling as normal life is suspended.
The financial system is It is happening when the world has never been more interconnected and thus
fragile and needs careful vulnerable to contagion. And it follows a decade in which lower and lower risk free
stewardship rates have forced investors to take on more risk. The combination of a need for
return with abundant and cheap funding liquidity has increased financial system
leverage even though weak investment and tight regulation has constrained credit
growth in the real economy. This system is fragile. It needs careful stewardship.
The policy response is The policy response has been equally extraordinary. The Fed took rates to zero before
extraordinary, building on the March FOMC meeting, offered unlimited QE and launched a series of initiatives
the experience of the GFC to keep wholesale funding markets liquid. Swap lines have been established to
transmit the liquidity it creates at home to non-US borrowers. The dollar’s hegemony
means that action from the Fed is most important, but the ECB has been just as
aggressive. Quantitative easing and government guarantees of company borrowing
are becoming ubiquitous, and need to be. Thus far, policymakers seem up to the task.
The monetary response lets It is the experience of the GFC (and the Euro crisis) that has enabled policy to be
us hope that financial crisis rolled out so quickly. The knowledge and institutions built then have been deployed
will be avoided again. They will not stop the first order economic impact of Covid. All of the
economies we forecast, as the pandemic breaks over them, see economic growth
crater. And we fear, on the advice of epidemiologists, that Covid will come in waves.
But the speed of response enables us to assume that financial crisis will be avoided.
It will not be possible to Not all feedback loops can be stopped however. We are, perhaps, watching the death
avoid the impact on global of OPEC+. Central banks can do nothing about businesses that are no longer solvent
demand and even governments will find that they cannot socialise the losses fully. Covid will
cause a severe recession even on a best-case scenario. Without the government and
central bank response it would be much worse. In the future, the stimulus will have
to be retired promptly lest it create financial imbalances of its own. But that is a
subject for another report in another time.
2020 growth forecasts CLSA real GDP growth forecasts

average 4.4ppts down on %YoY 2017 2018 2019 2020F 2021F
the 1Q20 EoAE US 2.4 2.9 2.3 (3.1) 1.1
Europe 2.6 1.9 1.2 (4.4) 0.8
Japan 2.2 0.3 0.7 (3.4) 1.5
Australia 2.5 2.7 1.8 (3.1) 1.7

China 6.9 6.7 6.1 3.3 7.0
Hong Kong 3.8 2.9 (1.2) (6.0) 3.0
India¹ 6.6 6.0 4.6 2.8 7.0
Indonesia 5.1 5.2 5.0 3.4 5.2
Korea 3.2 2.7 2.0 (0.1) 2.6
Malaysia 5.7 4.7 4.3 (3.9) 4.0
Philippines 6.7 6.2 5.9 0.7 6.7
Singapore 4.3 3.4 0.7 (2.5) 5.0
Taiwan 3.3 2.7 2.7 (1.5) 2.0
Thailand 4.1 4.2 2.4 (5.0) 0.8
1
Fiscal year starting April of captioned calendar year.
Source: CLSA, CEIC, DataStream
31 March 2020 eric.fishwick@clsa.com 3

Global and regional overview Eye on Asian Economies 2Q20
The Great Covid Recession

As a shock to final demand, The Covid-19 pandemic dominates the economic environment. As a shock to final
Covid exceeds the Global demand, it exceeds the Global Financial Crisis. Fear of the virus has hit consumer
Financial Crisis confidence and the government responses, locking down economies to slow the
speed with which the disease propagates, has had massive negative economic
consequences. China, where the disease spread first and has been contained first,
is on track to post (significant) negative year-on-year 1Q20 GDP growth if monthly
activity figures released for January and February are replicated in the quarterly
GDP statistics: Figures 1 and 2. The size of a shock means that “getting it back” to
post a full year outcome of “5-point-something” or 6% will be impossible. Even with
aggressive countercyclical policy, we expect a Chinese growth outcome for CY20
around 3-3½%.
Figure 1 Figure 2
Markit China PMIs China monthly activity indicators (monthly %YoY)

65 (DI) 30 (%YoY pcm)
60
20
55
50 10
45
0
40
Retail sales
35 (10)
Services Industrial value ad ded
30
Man ufactu ring (20) FA I monthly
25
20 (30)
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 11 12 13 14 15 16 17 18 19 20
Source: CLSA, Markit Economics Ltd Source: CLSA, CEIC
Covid-19: pp4-6 We discuss our Asian forecasts on pp23-31 and in our new format country sections
G2 forecasts: pp6-11 on pp32-52. First we discuss the assumptions, informed by experts consulted by
Commodity prices: pp12-14 CLSA, that we have made concerning the path that the pandemic will take (pp4-6).
World trade: pp15-17
Fat tails: pp18-22 Then we map this across to a global growth forecast as the Asian region is still, in
Asian forecasts: p31 large part, outward facing (pp6-17). Then we talk about extreme tail risks, the
measures that governments and central banks are introducing to mitigate them and
how we expect these to continue to develop (pp18-22), this is where you will find
our US rate and Treasury forecast.
Covid assumptions: Multi-stage not single peak

CLSA(U) Speaker series: Because Covid-19 is so central to a growth forecast we make explicit our
Tracking the Covid curve, assumptions concerning the pandemic. Here we are guided by the conference call,
20 March hosted by CLSA’s Head of Quantitative Research Jon Barden, with Drs Ashleigh
Tuite and David Fisman at the Dalla Lana School of Public Health at the University
of Toronto (12 March: CLSA(U) podcast available here and subsequently published
as CLSA(U) Speaker series: Tracking the Covid curve, 20 March)
Containing the pandemic in Our key takeaway from Tuite and Fisman was that, with the virus now present in
a single episode will be countries with weak governments and public health systems, containing the
unlikely pandemic in a single episode will be unlikely given the degree of
interconnectedness of modern economies. Speaking specifically on China Fisman
argued that:

 The fall in the reproduction ratio (in China) is expected given the measures that
China has introduced. Getting R0 from 2-something to below one is relatively
easy. China might have extinguished the domestic chains of transmission.
 And the restrictions are being relaxed in a monitored stepwise manner.
 Unfortunately there will be many countries that cannot and do not control
Covid. The weakest links will be countries with poor public health infrastructure.
 Fisman’s expectation is that countries that have successfully contained the

epidemic are constantly reseeded with it over the next 1-1/2 to 2 years until a
vaccine is developed (or it becomes endemic in the local population).
 Because successful control works, it leaves many humans susceptible to

infection (for example, using the official figures, in China 99.994% of the
population have not been infected by Covid).
 China will have periodically to turn its social distancing back on again to contain
the effects of external infection.
We expect multiple waves This idea that successfully containing the virus, at enormous economic cost, leaves
of Covid-19 the population vulnerable to subsequent reinfection is a profoundly disturbing
conclusion. It is, however, one that we fear will play out. China (alongside a handful
of other countries such as Singapore) has the best chance of proving the exception
as, in Fisman’s words, it combines the best combination of “authoritarianism with
competence”. Even so, our central case aligns with the expert advice, which is that
China, and most other countries will experience subsequent waves of the virus,
later in the year and into 2021.
The pandemic as an The challenge for western democracies, where populations are typically less
oscillatory system compliant with policies that they disagree with, is much more acute. Social
distancing is an effective way of squeezing Covid-19’s effective reproduction rate
below unity. But it is inconvenient, boring and likely to become subject to fatigue.
Compliance will fall the longer the requirement is in force. Here Tuite and Fisman
offered further insight arguing: “Waves are the expectation for a pandemic” and
further that: It is an oscillatory system: Social distancing is triggered by the pressure on
the health service. It works well (in containing the disease) and the hospitals empty so
social distancing is relaxed and the disease comes back because it hasn’t totally
disappeared.
First Covid wave 2Q20, second Covid wave 1Q21

We assume Covid Our central case is that in both Europe and the US the lockdowns to slow the
accelerates in 2Q, is spread of the virus result in a sharp contraction in economic activity in 2Q20, but
contained and eases back that this is only the first step in the process. The third quarter and the start of 4Q
over summer
will see infection rates falling as the effects of social distancing combine with the
northern hemisphere summer to reduce Covid-19’s effective reproduction rate.
The degree of containment being introduced to prevent health care systems from
being overwhelmed will work in limiting infection to a small proportion of the
population. However, this implies that the proportion of populations with natural
immunity will stay small. Populations will therefore remain susceptible either to
pockets of the disease hidden in the local population or carried by visitors and
migrants from overseas.

The risk of the pandemic For Europe and the US, we judge year-end be high risk for “reseeding” as winter
restarting spikes in 4Q20 weather sets in and the Thanksgiving and Christmas holidays test social distancing
commitments. We therefore expect Covid infection rates to rise again at the start
of 2021 begetting another round of government restrictions.
We assume a second wave Unlike 2020, we hope that western governments will react far faster in 2021.
of Covid in 1Q21 Additionally health care systems are likely to be better resourced though we do not
assume a vaccine or effective cure will be widely available. This suggests that hard
lockdowns can be avoided perhaps replaced by ubiquitous testing and targeted
containment. However, some restrictions on behaviour will be necessary. In the
absence of a cure or a vaccine social distancing will remain an important part of
slowing Covid’s effective reproduction ratio. This process potentially repeats until
a sufficient share of the population has resistance (having had the virus and
recovered) or a vaccine is developed. In practice, we hope that the “second wave”
– which we include in our forecasts in 1Q21 - is sufficient to take us to the end of
our end-2021 forecast horizon.
Mapping Covid-19 to growth: US and Europe

Pre-Covid-19 1Q growth February data for western economies show only limited impact from Covid-19 as
was OK, especially in the key benchmark surveys are done in the first half of the month. And start-year data
US were decent. At the time of writing, the Atlanta Fed’s GDPNow “nowcast” for the
US is guiding for above 3% QoQ saar growth: Figure 3. Nowcasts for the Eurozone
are weaker: a little over 0.25% QoQ (ie 1% QoQ saar): Figure 4.
Figure 3 Figure 4
Atlanta Fed GDPNow nowcast for 1Q GDP growth (% QoQ saar) Now-casting.com 1Q Euro Area GDP nowcast (% QoQ sa)
3.5 (%QoQ saar) 0.5
(% QoQ)
0.4
3.0
0.4
2.5 0.3
0.3
2.0
0.2
1.5 0.2
0.1
1.0
0.1
0.5 0.0
(0.1)
0.0
(0.1)
Jan Jan Jan Jan Jan Feb Feb Feb Feb Mar Mar Mar
20 20 20 20 20 20 20 20 20 20 20 20
Source: CLSA, Federal Reserve Bank of Atlanta Source: CLSA, Now-casting.com
March data collapse March will show a much greater impact as, by mid-month, public hysteria
concerning the virus had risen, travel had crashed and government prescriptions to
slow the virus propagation were being put aggressively into force.
Manufacturing PMI OK but Markit Economics’ flash PMIs provide some of the first visibility for both the
service PMIs crashed Eurozone and the US. They fell sharply: Figures 5 and 6. As in China, services were
hit much harder than manufacturing.
A temporary boost to goods There is a chance that 1Q consumption data will be surprisingly strong as panic
spending from panic buying buying of consumer goods has been a feature in many countries. The impact of
might support 1Q these purchases on GDP will be less as they imply a drawdown of retail and

wholesale inventories. More to the point, they are not sustainable. If they persist
mechanisms to prevent hoarding will be quickly introduced. Spending on services
and most durable goods will be hit hard and investment will fall as the virus
escalates. However, though we still see 1Q US growth negative, there is a good
chance that it is less negative than expected given the robust start to the quarter
and accelerated non-durable goods spending. We estimate a 1Q outcome to be
around -2% QoQ saar.
Figure 5 Figure 6
Markit economics PMIs: United States Markit economics PMIs: Eurozone

65 65
(DI) (DI)
60 60
55 55
50 50
45 45
40 40
Services Services
35 35
Man ufactu ring Man ufactu ring
30 30
25 25
20 20
07 08 09 10 11 12 13 14 15 16 17 18 19 20 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Note: Final to February, flash PMIs for March Note: Final to February, flash PMIs for March
Source: CLSA, Markit Economics Ltd Source: CLSA, Markit Economics Ltd
US 1Q: -2% QoQ saar In the US it is the second quarter where the impact of the pandemic fully appears.
US 2Q: -25% QoQ saar We expect all parts of household spending to fall sharply (we are modelling a 25%
fall in household spending on services in April – anecdotally this might be too
optimistic) and all subheads of private investment will fall QoQ. There may well be
some voluntary and involuntary inventory accumulation and government spending
is likely to accelerate. Even so, the US is looking at a massive rate of contraction in
the second quarter. We assume -25% QoQ saar. These numbers imply that 2Q20
GDP will be around 7½% lower than 4Q19.
EZ 1Q: -2½% QoQ sa As noted above, Eurozone growth started 2020 less well than in the US. And the
EZ 2Q -5% QoQ sa virus and government policy reaction to it leads the US and, with Covid, weeks are
hugely significant. The first quarter therefore sees more of the impact. We see 1Q
GDP around -2½% QoQ sa (a rate of about -9½% QoQ saar presented in the same
way as the US). Europe’s built in stabilisers – well-developed social nets etc. – will
offer no stability during Covid, when everyone is under instruction to stay at home.
However, Europe’s more advanced stage of the infection implies a slightly earlier
stabilisation than the US assuming the government reaction functions are similar.
We expect 2Q GDP growth of about -5% QoQ sa (-18½% QoQ saar). This leaves
2Q20 Eurozone GDP about 7½% down on 4Q19 levels also.
The pandemic’s impact These numbers are without precedent: Figure 7-8. This is inevitable. The
resembles a systemic exponential growth curve of the pandemic is extraordinarily compressed measured
financial shock against the timelines with which most economic cycles develop. The impact on
world trade will be similarly accelerated (see pp15-17 below). In this respect, the
only recent comparable is the speed with which the financing shock that followed
the failure of Lehman Brothers compressed global growth.

Figure 7 Figure 8
US QoQ GDP growth (%QoQ saar) Eurozone QoQ GDP growth (%QoQ sa)
10% (%QoQ saar) 4% (%QoQ sa)

5% 3%
2%
0%
1%
-5% 0%
-10% -1%
-15% -2%
-3%
-20%
-4%
Actual Forecast Actual Forecast
-25% -5%
-30% -6%
95 01 07 13 19 95 01 07 13 19
Source: CLSA, CEIC Source: CLSA, CEIC
A second-half 2020 rebound

We see a relaxation of Looking into the second half of 2020, growth should be better. We expect that
social distancing in 2H20 governments will continue to recommend social distancing into 3Q and 4Q but
compliance and the intensity of the prohibition will weaken. This is where the
onslaught of government policy will start to bear fruit. If spending does begin to
restart shuttered companies, kept alive by government transfers, will begin to re-
open. Initially this will be a cautious, controlled, process but the economic
unsustainability of closing an economy for a protracted period means that western
governments are likely to claim victory over the virus at the earliest opportunity.
Fiscal policy has clear focus: Across a wide range of countries the policies aimed at mitigating Covid-19 have
three common themes. The aim is to contain the second round effects of the
lockdowns on the real and financial economies:
To bolster health care  Increasing resources to health care systems. This is obviously necessary to cope
systems with the accelerated caseload of the pandemic. It appears in a forecast as
accelerated government consumption and investment.
To prevent businesses  Guaranteeing/backstopping or offering alternative credit lines for small

failing during the lockdown businesses. The suspension of tax payments, charges etc are economically
closely related. These are designed to minimise the number of small and medium
sized businesses that fail during the social distancing phase of the pandemic
because they cannot service their fixed costs. These policies do not, however,
preclude businesses temporarily closing or shuttering operations to minimise
variable costs. They do not therefore prevent a rise in unemployment; they are
there to ensure that it can fall again.
To cushion households from  Tax reductions, rate/charge rebates and universal government transfers to
reduced income or households. In absolute terms in both the US and Europe, existing social nets
unemployment are relatively well developed and ordinarily capable of dealing with a cyclical
rise in unemployment. The Covid-related payments go beyond this in attempting
to mitigate the impact of Covid on earnings for those employed and/or have to
self-quarantine as well as cushion the effects of unemployment. Transfers to
households are also justified as a mechanism to rebuild public confidence.
Figures 9a and 9b provide a list of fiscal and monetary initiatives in major western
countries.

Figure 9a
The policy onslaught has Developed economy fiscal initiatives (as at 29 March)
been unprecedented and we • Phase I stimulus (signed 6 Mar): USD8.3bn; 0.04% of GDP
US
expect successful • Phase II stimulus (signed on 18 Mar): US$100bn which includes some guarantees
for paid sick leave and funding for coronavirus testing
• Phase III stimulus (signed 27 Mar): US$2tn (8% of GDP)
o Main features include US$350bn worth of loans to small businesses,
US$150bn for state and local stimulus funds, direct payments to households, a
boost in unemployment benefits, up to US$500bn to rescue large companies
including airline companies
• 13 Mar: Set up a EUR37bn (US$40bn; 0.3% of GDP) Coronavirus Response
EU Investment Initiative to provide liquidity to small businesses and the health care
sector
• 10 Mar: Totals to JPY2.03tn (US$19bn); of which JPY1.6tn (US$15bn) are small
Japan business loans and JPY430bn (US$4bn; 0.1% of GDP) of fiscal spending
• 27 Mar: In discussion for a JPY56tn (10% of GDP) stimulus package
• 11 Mar: GBP30bn (US$37bn); of which GBP12bn will be responding specifically to
UK the nCov19 outbreak
• 18 Mar: Additional GBP330bn (15% of GDP) loan scheme and 20 billion pounds of
tax cuts and grants to aid the beleaguered leisure, tourism and hospitality sectors
• 20 Mar: announced that the government would pay a portion of citizens’ wages, and
an additional 7 billion pounds of welfare spending
• 26 Mar: announced self-employment income support scheme
• Total direct fiscal support amounts to GBP32bn (1.4% of GDP)
• 25 Mar: CAD52bn (US$36.6bn); 3% of GDP
Canada • Additional CAD55bn in tax deferrals
• 11 Mar: The state bank, KfW, will provide up to EUR550bn (US$610bn) worth of
Germany loans to companies
• 25 Mar: EUR156bn as a debt-financing supplementary budget; 4.5% of GDP
• Other measures are a stabilisation fund worth EUR600bn, EUR400bn in guarantees,
EUR100bn in loans through KfW and EUR100bn for equity stakes in companies
• 11 Mar: EUR25bn (US$28.3bn); 1.4% of GDP, including EUR1.15bn for the Italian
Italy health system and EUR1.5bn for its civil protection agency
• 16 Mar: approved a EUR340bn package of guarantees and funds
• 16 Mar: EUR45bn (US$49bn); 1.9% of GDP
France • Additional EUR300bn of French state guarantees for bank loans to businesses and
EUR1tn of such guarantees from European institution
Source: CLSA
Figure 9b
Developed economy monetary initiatives (as at 29 March)

• 3 Mar: cut by 50bp to a 1.0-1.25% range
US • 15 March: cut by 100bp to a 0-0.25% range and restarted QE by increasing bond
holdings by US$700bn (US$500bn in Treasuries and US$200bn in MBS)
• 18 Mar: established a Money Market Mutual Fund Liquidity Facility, a Primary Dealer
Credit Facility (PDCF) and a Commercial Paper Funding Facility (CPFF)
• 23 Mar: the Fed committed to unlimited QE and corporate bond buying
• 12 Mar: left overnight reserve deposit rate unchanged at -0.5%; increased the size of
ECB its asset purchase program by EUR120bn (US$135.3bn), more LTROs and more
TLTROs at up to -0.75% from June 2020 to June 2021
• 18 Mar: launched a EUR750bn asset purchase program until the end of the year
• 16 Mar: left short-term rates unchanged at -0.1%
Japan • Doubled annual purchases of ETFs to JPY12tn (US$112bn) and of real-estate
investment trusts to JPY180bn per year
• Expanded its upper limit of its corporate bond balance to JPY4.2tn and its commercial
paper balance to JPY3.2tn, each up JPY1tn, until end of Sep
• 11 Mar: cut by 50bp to 0.25%
UK • 19 Mar: cut by 15bp to 0.1% and would increase its QE program by GBP200bn to a
total of GBP645bn
• 4 Mar: cut by 50bp to 1.25%
Canada • 13 Mar: cut by 50bp to 0.75%
• 27 Mar: cut by 50bp to 0.25%, also started QE beginning with purchases of CAD5bn
worth of government securities per week, starting April 1; announced the
Commercial Paper Purchase Program (CPPP) to help restore short-term funding
Source: CLSA

4Q may be surprisingly These measures will not offer complete insulation. In both the US and Europe we
strong expect unemployment to leap and for super elevated levels to persist into summer.
However, we do expect that they will be successful in limiting the extent of second
round effects from the virus, given the scale of the economic shock.
Economic growth rates will Even partial normalisation of behaviour has the potential to generate rapid QoQ
be rapid off the ultra-low growth rates from the depressed levels of the first half. For example, we assume
1H20 base around a 15% QoQ annualised rate of growth for the US in 3Q, but this would still
leave GDP more than 3½% down on year ago levels. A similar outsized rebound
should be expected for the Eurozone. However, investors should recognise this for
what it is, a base effect.
Fourth quarter growth also is likely to be robust and this represents a stronger
endorsement of the policy response. Personal tax cuts and tax credits are unlikely
to boost expenditure while the economy is still in lockdown but, as household
confidence that the virus is abating grows, they do suggest that the pace of
spending on consumer durables will accelerate sharply. This will help 3Q growth
somewhat but it is likely to be more visible in 4Q. The 2020 Christmas shopping
season may end up surprisingly strong.
US CY20 growth -3.1% Putting some concrete numbers on this, for the US we assume around 15% QoQ
EZ: CY20 growth -4.4% saar in 3Q for the US and 3-4% QoQ saar in 4Q. This quarterly profile leaves 4Q
GDP 3.3% down on 4Q19 levels with CY20 growth -3.1%. A similar logic applies to
the Eurozone but, beyond the base-effect driven rebound, the growth trajectory
will be flatter. First, Eurozone data were less robust than those of the US going into
the crisis (and trend growth is lower). Second, the importance of exports to
Eurozone growth is greater than the US and, as we discuss below (see pp15-17),
Covid-19 implies a profoundly weak export environment. Thus though the base
effect means a good 3% QoQ (12½% QoQ saar) growth figure for 3Q we expect
only 0.5% QoQ (2% QoQ saar) for 4Q20 despite the fiscal response. This leaves
CY20 Eurozone GDP growth -4.4%, significantly weaker than the US. (See Figures
10 and 11 below for a summary).
The second wave

Covid-19 to return in winter If this were the end of the Covid-19 pandemic, these numbers would count as an
hitting economies in 1Q21 optimistic forecast. This reflects the extraordinary policy response that has taken
place in the last month. However, our fears that the virus will return in the winter
knocks this on the head.
We assume lockdowns can After having survived the first wave of Covid-19 we hope that the government
be avoided reaction to any resurgence of the virus will be more rapid and that public health
systems’ capacity to deal with Covid will be greater in 1Q21 than they are today.
We assume that testing becomes much more widespread and, as has happened in
the best performing Asian economies, allows targeted quarantine rather than
Meaning the economic national blanket measures. The public response may also be more ordered. In
impact is much smaller consequence, we do not assume that the economic lockdowns that are
characterising the current virus response have to be repeated in 1Q21. There will
still be a growth hit compared with surrounding quarters (travel for example will
suffer again) but it will be an order of magnitude smaller than the collapse in activity
that we forecast for the current quarter.
The risk of a conventional Financial markets should also be better prepared but we expect that the offset from
recession is greater in 2021 both fiscal and monetary policy will be less aggressive. Budgets, having swung to
than this year deficit in 2020, will find it hard to be as expansionary again in 2021. Cushioning the

corporate sector through exceptional transfer payments from government looks a

less sustainable strategy if the Covid threat proves recurrent. Though the
exogenous shock will be much smaller, it will still be sufficient to drop growth below
trend and unemployment is likely to rise more persistently in 2021. We judge that
the risk of a conventional recession is greater next year than this.
US: CY21 growth +1.1% Assuming that a 1Q20 and 2Q20 lockdown can be avoided we assume a 1% QoQ
EZ: CY21 growth +0.8% saar contraction in 1Q21 in the US followed by 3% QoQ saar growth in 2Q as
expenditure deferred in 1Q catches up. However, we see growth slowing in the
second half as unemployment rises with 1.5% QoQ saar in 3Q21 and 1% QoQ saar
in 4Q. This equates to a calendar year average of 1.1%.
A similar weak 1Q and rebound in 2Q should be expected in the Eurozone. But the
rebound will be more muted and 2H21 growth slower because of the drag from
weak world trade on Eurozone exports. As annualised rates we assume -1% QoQ
saar, +2.5% QoQ saar , 0% QoQ saar, 0% QoQ saar for quarters 1~4. This would
result in CY21 growth being around 0.8% YoY. Figures 10 and 11 tabulate this
central case forecast.
Figure 10 Figure 11
US GDP growth forecast Eurozone GDP growth forecast

%QoQ sa % QoQ saar % YoY %QoQ sa % QoQ saar % YoY
CY2019 n.a. n.a. 2.3 CY2019 n.a. n.a. 1.2
1Q20 -0.5 -2.0 1.0 1Q20 -2.5 -9.6 -1.9
2Q20 -6.9 -25.0 -6.4 2Q20 -5.0 -18.4 -7.0
3Q20 3.6 15.0 -3.6 3Q20 3.0 12.6 -4.5
4Q20 0.9 3.5 -3.3 4Q20 0.5 2.0 -4.1
CY2020 n.a. n.a. -3.1 CY2020 n.a. n.a. -4.4
1Q21 -0.3 -1.0 -3.0 1Q21 -0.3 -1.0 -1.9
2Q21 0.7 3.0 5.0 2Q21 0.6 2.5 3.9
3Q21 0.4 1.5 1.7 3Q21 0.0 0.0 0.9
4Q21 0.2 1.0 1.1 4Q21 0.0 0.0 0.4
CY2021 n.a. n.a. 1.1 CY2021 n.a. n.a. 0.8
Fiscal and monetary risks

These forecasts mainly These forecasts are severe; however, they represent, in the main, the direct effect
represent the direct effect of the Covid-19 epidemic. For 2020, we believe that it is valid to assume that the
of Covid worst of the feedback loops, which would intensify the damage caused by Covid
and prevent any rebound in activity in periods when the pandemic wanes, can be
contained. We make this our central case because of the speed and breadth of the
policy response.
There will be a greater rise While fiscal policy is likely to prove an effective way of minimising the collateral
in government debt than damage from Covid-19 in high-tax developed economies, it will inevitably result in
during the GFC massive budget deficits. Crowding out will not be an issue during the recession. If
central banks are able to keep money markets liquid, risk free assets are likely to be
in strong demand (see our Treasury yield forecast below). However, the debt levels
that governments will be left with following Covid will exceed those that followed
the Global Financial Crisis and the scope for subsequent recoupment of funds,
through disinvestment much lower.
The overhang will limit There is strong consensus behind using government funding to mitigate the effects
policy in 2021 of Covid in 2020 and, as a public health emergency, it justifies an aggressive
response even among fiscal conservatives. However, we fear that the growth hit

from the second wave of the virus in early 2021 will meet with less consensus and
a weaker policy response as both monetary and fiscal policy will already be fully
extended. Deficit reduction will start to compete for government attention.
We forecast that central In making the forecast we have to assume that central bank efforts to keep debt
banks will be successful in funding markets operating are effective. This already involves the Bank of England,
preventing a funding crisis ECB and Federal Reserve purchasing corporate bonds with reserve money. The
growth of risky assets on central bank balances sheets will therefore be accelerated
by Covid-19. This process is already far advanced in the case of Japan which
demonstrates that it does not represent an immediate crisis risk. But, it does expose
At the expense of diluting the central bank balance sheet to credit risk and is therefore a potential liability for
their balance sheet integrity already stretched national budgets further down the line.
Mapping Covid-19 to growth: Commodity prices & EM demand

The collapse in the oil price Monetary and fiscal policy cannot contain all the feedback loops. The collapse in
will extend the impact of the oil price represents a feedback loop that will worsen the impact of Covid-19 on
Covid world demand and extend it into the second half. US shale oil was, outside of the
Permian basin, already retrenching in 2019 (Figure 12) before Russia and Saudi
Arabia’s price war caused oil prices to crash below USD30/bbl: Figure 13.
Figure 12 Figure 13
US exploration rig count Oil prices (USD/bbl)

2, 000 (#) 80
(USD/bbl)
1, 800 70
1, 600
60
1, 400
50
1, 200
40
1, 000
800 30 WTI
600 20
Bren t
400 10
200
0
0 Jan Feb Mar Ap r May Jun Jul Au g Sep Oct Nov Dec Jan Feb Mar
14 15 16 17 18 19 20 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20
Source: CLSA, Bloomberg Source: CLSA, Bloomberg
The oil price war is Our longstanding argument that oil and commodity prices tend to weaken when
happening in a weak world trade volume growth is less than 2¾% is not altered: Figure 14. Global trade
demand-supply growth was below this level for all of 2019 and it was only by the continuous efforts
environment of OPEC+, to restrict production in the face of sluggish demand, that oil prices were
held up. The already weak demand environment reinforced by the risk aversion and
fears that travel lockdowns would compress oil demand provides the background
for the collapse in prices in the first quarter.
Oil prices to remain under As the virus intensifies and economic data fall in coming months, oil and commodity
pressure prices will stay under pressure. However, we hope that the breakdown in Russia-
Saudi cooperation has front loaded the worst of the losses. Even so, we expect oil
to end 2Q between USD20-25/bbl. Thereafter signs of second half rebound should
support a recovery. However unless OPEC+ is able to rebuild consensus, a
sustained move back above USD50/bbl will be impossible. We reduce the end-
2020 oil price forecast to USD40/bbl: Figure 15.

Figure 14
Even before Covid World trade volume growth and commodity prices (3mma %YoY)
commodity prices were
fragile 40 (%YoY) 13
(%YoY) 12
11
30 10
9
20 8
7
6
10 5
4
0 3
2
1
(10) 0
CRB index LHS (1)
(20) (2)
World trade volu me RH S (3)
(4)
(30) (5)
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Source: CLSA, cpb.nl, Bloomberg
Figure 15
Commodity price forecasts

Period-end Annual Coming 12 months by quarter
2017 2018 2019 2020F 2021F 2Q20F 3Q20F 4Q20F 1Q21F
Oil (Brent) (p/e) 66.9 53.8 66.0 40.0 35.0 22.0 50.0 40.0 35.0
Oil (Brent) (average) 54.8 71.7 64.2 41.0 34.0 24.0 40.0 45.0 37.0
CRB index (p/e) 193.9 169.8 185.8 145.0 135.0 115.0 160.0 145.0 130.0
FAO food index (p/e) 169.1 161.9 181.5 160.0 160.0 175.0 170.0 160.0 155.5
Gold (p/e) 1,304 1,283 1,517 1,650 1,600 1,700 1,650 1,650 1,700
Source: CLSA, Bloomberg
Defaults are normally a With the high weight of energy companies in the high yield market, credit spreads
long-lagged variable will continue to rise to mid-year but should be able to ease back in the second half.
With all the concerted effort from central banks to keep markets liquid, we do not
envisage an immediate spike in delinquencies. Corporate default is typically a long-
lagged variable through recessions unless liquidity crises intervene.
We see 2021 a greater risk With coupons low, refinancing maturing bonds is the main problem. Bloomberg lists
than 2020 USD60.4bn of energy sector corporate bonds as due for repayment this year. This
rises to nearly USD85bn in 2021: Figure 16. If, as we fear, Covid is a multi-wave
pandemic this again points to next year being more risky than this year from the
perspective of “normal” recession mechanisms: default and financial balance sheet
impairment.
Collapsing commodity Oil and commodity prices segue to discussion of the impact of Covid on commodity
prices means a terms of producers. Given the importance of shale oil to US growth, the collapse in oil prices
trade loss for producers will have a negative impact on growth in the US. Though hidden under the much
greater direct impact of the virus in 2020 weak energy sector investment is likely
to flatten the US growth profile in 2021. However, the impact of the collapse in the
terms of trade will clearly be felt much more acutely in more concentrated
commodity exporters.

Figure 16 Figure 17
Energy sector bond redemptions (USDbn per annum) Oil price vs Eastern Europe & CIS demand growth (3mma %YoY)
120 100% (%YoY) (%YoY) 40%
(USDbn)
80% Bren t crud e RHS
USD 30%
100
EUR 60% Eastern Europe & CIS imp ort volu mes LH S
20%
80 CNY
40%
Other 10%
60 20%
0%
0%
40
-10%
-20%
20 -20%
-40%
0 -60% -30%
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 10 11 12 13 14 15 16 17 18 19
Source: CLSA, Bloomberg Source: CLSA, Bloomberg, cpb.nl
This will squeeze their The last protracted period of oil and commodity price weakness was in 2014 to
ability to buy manufactured 2016. This was a period of contracting demand growth from commodity producing
goods emerging economies as the terms of trade loss hit growth and currencies. Import
demand growth from Russia and Eastern Europe was negative in 2014 and 2015
(demand coincident with oil price). Import demand growth from Latin America
turned negative in early 2015 (demand lagging the oil price by four months) and
import demand from Africa and the Middle East fell from mid-2015 (demand lagging
price by eight months): Figures 17, 18 and 19.
Figure 18 Figure 19
Oil price vs Latin American demand growth (3mma %YoY) Oil price vs Africa and Middle East demand growth (3mma %YoY)
100% (%YoY) 20% 35% (%YoY) (%YoY) 100%
(%YoY)
80% Bren t crud e advanced 4 months RHS 30% Africa & Middle East imp ort volu mes LHS 80%
15%
Latin America import volumes LHS 25% Bren t crud e advanced 8 months RHS
60% 60%
20%
10%
40% 15% 40%
20% 5% 10% 20%
0% 5% 0%
0%
0%
-20% -20%
-5%
-5%
-40% -10% -40%
-60% -10% -15% -60%

10 11 12 13 14 15 16 17 18 19 10 11 12 13 14 15 16 17 18 19 20
Source: CLSA, Bloomberg, cpb.nl Source: CLSA, Bloomberg, cpb.nl
And compromise their The size of the terms of trade shock means that these commodity dependent
ability to respond to Covid economies would be in trouble even if Covid were not moving into their
populations. The reality is that commodity producers face the shock of Covid-19
against a background of weak growth, weak commodity receipts (and therefore
dollar revenues) and, because commodities comprise a key part of their government
tax bases, a depleted capacity for fiscal response. At the very least non-Asian EMs
will be in recession. Certainly, their contribution to world trade will be much more
negative than it was in 2014-16. If oil prices stay low, sovereign default will seem
an attractive option for those worst affected.

Mapping Covid-19 to growth: A hard slowdown in world trade

World trade volume growth in the three months to December 2020 was -1% YoY.
This was the weakest since the Global Financial Crisis as developed economy
demand had, during 2019, decelerated: Figure 20.
Figure 20 Figure 21
World import volume growth (3mma %YoY) Asia import volume growth (3mma %YoY)
10 (3mma %YoY) 20
9 (3mma %YoY)
Developed economies EM A sia x Ch ina
8
Emergin g economies 15
7
World China
6
5 10
4
3
5
2
1
0 0
(1)
(2)
(5)
(3)
(4)
(5) (10)
12 13 14 15 16 17 18 19 12 13 14 15 16 17 18 19
Source: CLSA, cpb.nl Source: CLSA, cpb.nl
Asian growth was somewhat better (Figure 21) as:
 China’s contribution to world trade volume growth had started to accelerate.

Some of this reflected accelerated food price imports both as part of the US-
China Phase 1 trade deal and to combat the effects of African Swine Fever.
 Some “early cycle” Asian exporters had started to deliver better economic
performance. The end to 2019 in Taiwan and Korea in particular was surprisingly
robust.
The first trade impact of This environment has been entirely overturned by Covid-19. February data show
Covid in China was to crash that so far China’s imports are reasonably robust; exports however have been hit
exports hard as factories were closed to combat the virus: Figure 22.
Figure 22 Figure 23
China trade (USD %YoY) China daily thermal coal use

60% (%YoY) 90 (10k tonnes)
50% 80
40% 70
30% 60
20% 50
10% 40
0% 30
-10%
20
-20% Exports 10
-30%
Imp orts 0
-40% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
14 15 16 17 18 19 20 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20
Note: Monthly to December 2019, Jan and Feb combined for 2020 Source: CLSA, Wind
Source: CLSA, CEIC

The international spread of Covid clearly represents a supply shock as factories were shuttered after the
Covid represents a massive Chinese New Year. However, production is restarting as the government judges the
demand shock for Asian hardest quarantine restrictions can start to be relaxed. Daily thermal coal used by
manufacturers
power generators, which we use as a real time proxy for factory activity, is up 48%
from its February average: Figure 23. However, the impact of Covid on Asian
production will soon be overtaken by international events. The region is a large net
exporter of goods and the international spread of the virus represents a massive
demand shock for Asian growth.
Our expectations for how western and extra-Asian EM economies will fair through
the Covid-19 pandemic results in the following assumptions being passed into our
Asian growth forecasts.
Which will stymie  Government imposed lockdowns to combat the virus will create a synchronised
production recoveries contraction in manufacturing trade. Exports are likely to fall first but, with a one
to two month lag, we expect that import demand will collapse. This will be a
violent and extremely rapid demand shock that will hit export driven economies
at precisely the point that they might, otherwise, start to recover from the first
round of the Covid pandemic. This hits Asia hard but also feeds back into the
weakened Eurozone forecast we flag above.
The demand collapse will be  This demand shock will be intense as the virus lockdowns have been
global as Covid is global concentrated in a period of less than three months (February to April). Covid is
a synchronising event for world trade. Demand from all geographic regions will
fall simultaneously.
We do not assume a  We do not assume a GFC-collapse in trade finance (justified by the aggression
collapse in trade financing of central banks) but the slowdown in final demand will be more rapid and
deeper. The end result for world trade volumes may not, therefore, look that
different to the GFC.
But the demand shock is  The GFC saw world trade volumes fall by 17% between October 2008 and
huge, we assume a 15% fall March 2009. For Covid, given the scale of direct GDP destruction caused by
in world trade volumes to Covid, we assume around a 15% fall in world trade volumes in the period to
September
September. On a year-on-year basis this will take world trade volume growth to
-16% YoY by 3Q20.
Thereafter a partial rebound  Thereafter there will be a rebound and exports to western economies should
improve into the Christmas shopping season. However:
 Demand from commodity exporters will remain weak.
 Intra-Asian trade will be weak as smaller Asian countries are export driven.
 Demand from the Eurozone will be weak as Europe is export driven.
These factors will limit the extent of any recovery to end-2020.
A return of Covid will see a  Our assumption of a second wave of Covid early in 2021 causes a smaller
similar but much smaller demand interruption. But the response of manufacturing and trade may be
disruption in 2021 quicker. We assume a 4% fall in world trade volumes between January and May
2021.

The world is in a  The rebound phase from Covid lasts 3-4 months but then the inability of fiscal
conventional recession by and monetary policy to be effectively deployed for a second shock generates
end 2021 contracting global trade volumes into the end of 2021.
The second difference trough in this forecast occurs late summer/early autumn
2020. However, our baseline assumption of a second peak in Covid-19 infection in
early 2021 suggests that world trade growth will bounce back far less than it fell
and that the rebound will roll over quickly around July-August 2021. The profile is
shown (along with the previous two recessions for perspective) in Figure 24 in
seasonally adjusted level terms and as a YoY growth rate in Figure 25.
Figure 24 Figure 25
Actual & forecast world import volume (seas adj levels) Actual & forecast world import volume (% YoY)
130 20%
(%YoY) (%YoY)
15% Actual F/cast
120
10%
110
5%
100 0%
90 Actual F/cast -5%
-10%
80
-15%
70
-20%
60 -25%
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Source: CLSA, cpb.nl Source: CLSA, cpb.nl
World trade volume growth Global trade volumes declined by 0.4% YoY in 2019. We forecast that CY2020 will
CY20 -8%; +1% in 2021 see trade volumes decline by -10% with +1% YoY growth in 2021. The Global
Financial Crisis saw world trade volumes contract by 13.1% YoY in 2009 but grow
by 13.3% YoY in 2010. Covid has a much greater impact on final demand than the
GFC because of the harshness of current economic lockdowns, add in feedback
loops and multiplier effects and contracting world trade volume will, on trend,
persist through to the end of 2021.
The impact in 2020 is the These forecasts are extremely pessimistic. However, they are also primarily the
direct effect of Covid direct effect of the lockdown/social distancing policies introduced to slow Covid-
19’s spread and the risk aversion in households and corporates. In our forecast
the bulk of second-round recession effects (outside of commodity prices) are
pushed into 2021 because they reflect solvency risk rather than liquidity risk. We
make this forecast because of the aggression with which governments have
stepped in to maintain lines of funding. We discuss this, and what it requires from
central banks, below.
At the time of writing, medical experts recommend that social distancing measures
will have to be maintained for a protracted period if, before the development of a
vaccine, Covid is not to reaccelerate after the initial wave is over. Our forecasts take
this as base but adds our assumption that fatigue with social distancing and the
economic necessity of restarting production allows activity and world trade to
rebound in the summer and autumn. This creates the environment for Covid to
reappear early in the New Year.

2020 is a write off even in a In a blue-sky forecast, where Covid does not reappear, 2020 is still a write off.
blue-sky forecast However, in this case the second difference trough does not send a false signal and
world trade growth should return positive late 2020 and accelerate through 2021.
In a blue-sky scenario 2021 ends up being stronger than expected. Such an
outcome would mean that world growth would look similar to 2017 with
accelerating GDP growth synchronised across a wide range of economies. We
sincerely hope that this scenario prevails but it is not our base case. We advise
investors to hope for the best but prepare for the worst.
Fat tail risks we hope will not be realised

Fat tail risks that we hope Even with our pessimistic central case there are fat tails that investors have to be
will not be realised aware of but that we have had to assume are not realised for the purpose of
forecasting. Three big ones justify discussion:
 Financial instability.
 A second Eurozone crisis.
 Unanchoring of inflation expectations.
Fat tail 1: Financial instability

Covid will inevitably cause The rise in credit spreads that we flag above represents an obvious risk. The falling
businesses to fail oil price has raised solvency issues in the energy sector and the interruption to
business activity because of Covid-19 lockdowns will inevitably cause a rise in
business failures across a wide range of industries.
For domestic credit cycles we believe that this risk is manageable in large part
because of the speed with which monetary and fiscal policy has been implemented.
Government guarantees for business borrowing are becoming commonplace in
addition to the transfer payments, tax and rate holidays and charge suspensions
that formed the first line fiscal response to Covid-19.
We do not believe that this Businesses will fail despite all of the above. But, we do not believe that Covid-19
represents a systemic risk will cause a systemic crisis in banking systems. Capitalisation levels are high and
to banking systems private sector credit growth in both the US and Europe has been subdued in the
post-GFC period.
But sticky liquidity means Essentially our confidence reflects the view that sovereign governments are a
that QE will have to get credible backstop for domestic local currency borrowers and that central banks will
bigger and wider be successful in averting liquidity issues in wholesale markets. To ensure that this
remains the case will, however, require continued extension of Quantitative Easing.
As important as the scale is the range of assets that central banks buy as the
financial “plumbing” functions imperfectly in extreme conditions. The speed with
which QE programs have been expanded to include a wider and wider range of
assets is more important than their size or the policy rate.
USD gains imply This still leaves the (largely USD-denominated) international credit cycle as a risk.
international liquidity is The speed with which the Fed has established swap lines with foreign central banks
tight is reassuring in this respect.
But growth in international Additionally, although it is counter to the usual market narrative, we do not see
liquidity has not been evidence that international liability growth has been worryingly high during the
exceptional post-GFC post-GFC period. Certainly, the USD amount of debt has risen but historically debt
levels have been an ineffective predictor of financial crisis. Instead, we worry when

debt growth has been exceptionally rapid relative to historical norms and nominal
GDP growth; and rates of debt growth have, in recent years, been unremarkable.
Figures 26 and 27 are drawn from the BIS data on global liquidity.
Figure 26 Figure 27
International USD credit to non-bank borrowers (USDbn) International USD credit to non-bank borrowers (%YoY)
14 50%
(USDtn) Total (%YoY)
Emergin g markets 40%
12
EM A sia Pacific
China 30%
10
20%
8
10%
6
0%
4 Emering markets
-10%
EM A sia Pacific
2 -20% China
Total
0 -30%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Source: CLSA, BIS international liquidity statistics Source: CLSA, BIS international liquidity statistics
Correlated asset price These show credit to the non-bank sector. Volatile and correlated asset price moves
moves warn of financial show that central banks (and again particularly the Fed) have to be mindful of
sector liquidity risks financial sector liquidity also. Progressively lower risk free rates have pushed
investors up the risk curve, both in the sense of pushing them into riskier assets but
also into more levered investment strategies. This necessarily raises liquidity risk.
Figure 28 Figure 29
SPX and 10-year Treasury yields (%) Fed funds rate and IOER
3, 600 (SPX) 2.5 3.0
(%) (%)
3, 400
2.5
2
3, 200
2.0
3, 000 1.5
1.5
2, 800
1 Upper bound
2, 600 1.0
Lower bound
2, 400 IOER
S&P500 LHS 0.5
0.5 Fed fun ds rate
2, 200 10-yr Treasu ry yield RHS
0.0
2, 000 0 Jan Feb Mar Ap r May Jun Jul Au g Sep Oct Nov Dec Jan Feb Mar
Jan Feb Mar 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20
It was in response to these It was in response to evidence of funding problems in the Treasury market (signalled
risks that the Fed restarted by Treasury yields rising when, as risk free assets they should have been strongly
QE so quickly bid), that the Fed cut rates to zero and restarted QE on 15 March: Figure 28 and
29. This speed of central bank response makes us optimistic that we do not have to
include a 2008-style financial sector collapse in our Covid-19 driven forecast.
Fed and Treasury market forecast

The Fed balance sheet will We do not expect that the Fed will take rates negative. However the balance sheet,
far exceed USD5tn already approaching USD5tn: Figure 30, will expand massively. The Fed announced
that it will purchase Treasury securities and agency mortgage-backed securities in

the amounts needed to support smooth market functioning and effective

transmission of monetary policy to broader financial conditions and the economy.
In other words, that QE will be as much as it takes. As important, the Fed has created
a bunch of new facilities to purchase investment grade corporate bonds in the
primary market (the Primary Market Corporate Credit Facility: PMCCF) and the
secondary market (the Secondary Market Corporate Credit Facility: SMCCF); asset
backed paper and municipal debt.
Fed has deployed the entire While not quite everything is backstopped, the Fed has clearly learned the lessons
toolkit it developed in the of the GFC and deployed the entire toolkit it developed then in one fell swoop.
GFC in one fell swoop Modern levered financial systems are fragile and dependent on sources of funding.
The central bank has to be willing to step as a source of liquidity to whatever sectors
of the economy need it. And it needs to do it quickly. Simply being “lender of last
resort” to banks in the hope that they will intermediate the liquidity elsewhere is
not enough.
Figure 30 Figure 31
Fed balance sheet (USDbn) 10-year Treasury yield forecast vs The Street
5.0 2.0
(USDtn) (%)
1.8 CLSA
4.5
Bloomberg wght avg
1.6
4.0 Forwards
1.4
3.5
1.2
3.0 1.0
2.5 0.8
2.0 0.6
Balance s heet 0.4
1.5
Repos
0.2
0.8
0.4
0.5
0.9
0.6
0.6
0.5
0.4
0.4
0.4
1.0 Treas uries (ex bills)
0.0
0.5 Treas ury b ills
0.0
10 11 12 13 14 15 16 17 18 19 20
10-year Treasury yields It is impossible to forecast how large the balance sheet will grow because of these
consistently around or forces. The Fed has set an interest rate target - 0.25% the Fed funds ceiling though
below ½% the Fed funds rate falling to the IOER (0.1%) would be a sign of success - and
committed to supply whatever liquidity is needed to hit this target. This policy
implies progressively lower Treasury yields as, in order to overcome risk aversion in
non-government markets, the Fed is likely to have to flood the Treasury market with
funding liquidity. Figure 31 gives our forecast relative to forward rates and the
Bloomberg median forecast (though this looks historical). We see 10-year yields
consistently around 0.5%. The fact that we see USD money market rates staying
positive argues against protracted periods of negative 10-year Treasury yields.
Fat tail 2: A Eurozone sovereign debt crisis

The Eurozone is a key risk The Eurozone is a key risk during Covid. Stresses are clearly apparent with sovereign
debt spreads widening out sharply as the Covid-19 crisis intensified: Figure 32.
However, the ECB has responded aggressively. It has already expanded its QE
The ECB has contained the program and included corporate bonds both as assets that it will purchase and as
widening in sovereign acceptable collateral for its repo operations. In addition, it has abandoned the self-
spreads imposed rules, which limited its ability to focus its QE purchases on peripheral
government bonds.

The ESM will be used to Spreads have subsequently fallen and the ECB’s prompt action has served to buy
backstop weaker Eurozone some time. However, the real reason for confidence is that the Eurozone already
governments has the mechanisms needed to address the fragility of national government debt
markets: the European Stability Mechanism (ESM). This was created during the
Eurozone for precisely the purpose of backstopping fiscally weak Eurozone
countries to whom the markets would otherwise be reluctant to lend. Facing a
public health emergency, we expect that this will happen with the ESM, rather than
national governments, borrowing from the market. Covid therefore will accelerate
the Eurozone’s progression to an eventual fiscal union.
Figure 32 Figure 33
Eurozone sovereign bonds yields (%) ECB balance sheet (EUR bn)
450 5.0
(bp) (EURtn)
400 4.5
Italy
350 4.0
Spain
300 Portugal 3.5
250 Greece 3.0
200 2.5
150 2.0
1.5
100
1.0
50
0.5
0
Oct Oct Oct Nov Nov Dec Dec Jan Jan Feb Feb Mar Mar 0.0
19 19 19 19 19 19 19 20 20 20 20 20 20 10 11 12 13 14 15 16 17 18 19 20
Fat tail 3: Unanchoring inflation expectations

Ultra aggressive monetary Our forecast sees ultra-aggressive money creation by central banks combined with
and fiscal policy combined unprecedented fiscal stimulus. Debt levels will rise sharply meaning that central
banks’ tolerance of inflation being above target is likely to increase. The risk that
inflation rise through (or shortly after) the pandemic cannot be dismissed.
Helicopter money like And universal transfers to households are redolent of “helicopter money”. Strictly,
policies the comparison is valid if the central bank is explicitly creating reserve money to
fund the transfer. If it is financed out of government debt, it is fiscal policy because
a liability is created on the government’s balance sheet. However, in a world where
Covid legitimises an aggressive fiscal response and central banks are preoccupied
with keeping funding markets liquid by creating ever-larger amounts of reserve
money, the edges become blurred.
Hyperinflation requires Economic history emphasises that it takes more than just extreme monetary and
weak institutions fiscal policy to unanchor inflation expectations. Hyperinflations have been driven
by a public loss of confidence in the strength of institutions and leadership. Covid
obviously represents a test. So far the response has been (mostly) impressive across
a wide range of political systems. But, inevitably the perceived advantages of
authoritarian regimes will be boosted by Covid and, inevitably, countries will
become more siloed. Nationalism has been given an (unwelcome) boost by Covid.
Current inflation data are falling and will fall further

Covid’s immediate impact is These are long-term concerns. However, current data are avowedly deflationary.
deflationary Inflation expectations priced into the Treasury market have collapsed, Figure 34,
and though survey based inflation measures remain more anchored, Figure 35, they
moved down in the latest (March) surveys.

Figure 34 Figure 35
5-year inflation breakeven 5 years forward Uni of Michigan inflation expectation surveys
2.5 (%) 5.0
(%)
4.5
2.0 Expected inflation in 5 years
4.0
Expected inflation in 1 year
1.5
3.5
1.0 3.0
2.5
0.5
2.0
0.0
Jan Feb Mar Ap r May Jun Jul Au g Sep Oct Nov Dec Jan Feb Mar 1.5
19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 10 11 12 13 14 15 16 17 18 19 20
And the starting point is With the exception of China, where the impact of Covid was concentrated in
that inflationary pressure is February, actual inflation data precede the pandemic. That said the starting point is
minimal favourable. With the exception of China, where African Swine Fever still dominates
(and is likely to persist, see CRR’s March Inflation Watch: Dual epidemics) both
headline and core inflation rates are benign. Even India, where recent CPIs have
been elevated by fresh vegetable prices, is seeing headline inflation fall fast. Core
inflation everywhere is around or below the central bank’s inflation target: Figure
36.
Figure 36 Figure 37
Headline and core inflation rates (%YoY) China goods and services inflation (%YoY)
% YoY Headline inflation Core inflation 6.0
(%YoY)
Jan Feb Jan Feb
Headlin e
Australia 1.8 n.a. 1.4 n.a. 5.0
Service prices
China 5.4 5.2 1.5 1.0
Ex food and energy
4.0
Hong Kong 1.4 2.2 -0.6 1.1
India 7.6 6.6 4.2 4.1
3.0
Indonesia 2.7 3.0 2.9 2.8
Korea 1.5 1.1 0.8 0.5 2.0
Malaysia 1.6 1.3 1.6 1.3
Philippines 2.9 2.6 3.3 3.2 1.0
Singapore 0.8 0.3 0.3 -0.1
Taiwan 1.9 -0.2 1.3 -0.4 0.0
15 16 17 18 19 20
Thailand 1.1 0.7 0.5 0.6
Oil and service prices to The effect of the fall in oil prices is not seen in Figure 36, but it will appear within
cause inflation to fall one quarter. Therefore, we expect that headline inflation rates will drop below core
before the middle of the year. And China’s February inflation figures, where pork
prices mean that this general statement will not apply, confirm that the immediate
impact of Covid-19 will be deflationary. The crash in services demand in February
caused service price inflation to fall from 1.5% YoY to 0.6% YoY: Figure 37.
We expect the impact of In our forecasts, we assume that the impact of Covid-19 will continue to be a
Covid to continue to be deflationary one. As we discuss below, inflation is not a significant issue for any of
disinflationary the Asian countries that we forecast. It will not distract either central banks or
governments from focusing on growth.

Asian growth: Worse than the GFC

For Japan the direct impact We first have to correct an omission. We did not discuss Japan in the previous
of Covid is substantial but section because as a current account surplus, trade-correlated economy, it cannot
less than the US or EZ be considered an exogenous demand driver of global growth. Looking at the growth
environment for 2020 and 2021 the trade correlation (Figure 38) is the main
problem. Japan’s Covid response has contained the virus to slower reproduction
rates than in other countries without completely shuttering the economy. There will
still be a substantial first half hit, Figure 39, and we assume -2% QoQ for 1Q20
growth and -3% QoQ for 2Q but this is smaller than the US and Europe and looking
forward, it is the weakness of global demand that sits heaviest on our forecast.
Fiscal tightening has been The external drag sits alongside a lack of momentum from 2019. Japan raised
overtaken by Covid consumption taxes in October and 4Q19 GDP growth crashed in response. Fiscal
tightening has been overturned by Covid. However, Japan’s fiscal response still
lacks detail compared with other countries (Figure 9a and 9b above). The latest
headlines are that the government is considering a JPY56tn package, this is around
10% of GDP. But other information is sparse.
Figure 38 Figure 39
Japan GDP growth vs world trade volume growth Japan composite PMI
20% 8% 60 (DI)
(%YoY) (%YoY)
15% 6% 55
10% 4% 50
5% 2%
45
0% 0%
40
-5% -2%
35
-10% World trade volu me -4%
30
-15% -6%
Real GDP RHS
25
-20% -8%
-25% -10% 20
95 97 99 01 03 05 07 09 11 13 15 17 19 08 09 10 11 12 13 14 15 16 17 18 19 20
Source: CLSA, CEIC, cpb.nl Source: CLSA, Markit Economics Ltd
Japan: CY20 -3.4% The package headline is comparable to that deployed to try to cushion the impact
Japan: CY21 +1.5% of the GFC. That saw Japan’s general government deficit (using IMF data) increase
from 4.3% to 10.2% of GDP. However, the tight correlation with world trade was
little affected (see Figure 38 above) and GDP contracted by 5.4% in 2009. We fear
a similar performance this year. The direct effect of Covid means that growth this
year will be -3.4%. However, beyond the base effect, the 2021 rebound will be
muted because of the weakness of exports. We forecast 1½% growth for CY2021
which takes into account a boost to growth in the summer quarter from the
Olympics, rescheduled for July-August 2021.
Asia’s GDP hit is earlier and This pattern repeats across AxJ. This year’s growth numbers are depressed in the
in most countries less large first half by the direct effect of Covid. The direct effect is concentrated in 2Q in
than we expect in the west western economies; however, it is most acute in 1Q20 figures in our Asian
forecasts. In all cases the initial growth dislocation is severe but the experience of
SARS and best-practice testing and containment techniques mean that a number of
Asian countries have flattened the epidemic curve with less severe economic
lockdowns than are being introduced in (slower reacting) western economies.
Additionally the higher weight of manufacturing in Asian GDP means that the
immediate impact of the virus on economic growth is more limited than in service-
driven economies (PMI data are consistent in showing a more immediate hit on
services than manufacturing).

Even taking all this on board Even taking all this on board there have been huge cuts to our forecasts for 2020.
there are huge cuts to our Figure 40 compares our current best estimates with the forecasts that we made
forecasts three months ago.
Figure 40
The Covid effect knocks CLSA GDP forecasts relative to 1Q20 Eye on Asian Economies
4.4ppts off our 2020 (%YoY) 2017 2018 2019 2020F 2021F Chg in CLSA f'cast
growth forecasts in last qtr
2020 2021
USA 2.4 2.9 2.3 (3.1) 1.1 (4.1) (1.1)
Eurozone 2.6 1.9 1.2 (4.4) 0.8 (5.1) (0.7)
Japan 2.2 0.3 0.7 (3.4) 1.5 (3.7) 0.8
Australia 2.5 2.7 1.8 (3.1) 1.7 (5.1) (0.8)

China 6.9 6.7 6.1 3.3 7.0 (2.7) 1.3
Hong Kong 3.8 2.9 (1.2) (6.0) 3.0 (5.6) 0.6
India¹ 6.6 6.0 4.6 2.8 7.0 (3.4) (0.1)
Indonesia 5.1 5.2 5.0 3.4 5.2 (1.8) (0.3)
Korea 3.2 2.7 2.0 (0.1) 2.6 (2.1) (0.1)
Malaysia 5.7 4.7 4.3 (3.9) 4.0 (7.2) 0.4
Philippines 6.7 6.2 5.9 0.7 6.7 (5.7) 0.7
Singapore 4.3 3.4 0.7 (2.5) 5.0 (3.6) 3.4
Taiwan 3.3 2.7 2.7 (1.5) 2.0 (3.8) (0.1)
Thailand 4.1 4.2 2.4 (5.0) 0.8 (7.3) (2.3)
Source: CLSA, CEIC, Bloomberg
Being manufacturing driven The higher weight of manufacturing in Asian countries’ GDP turns from asset to
turns from a benefit to a liability as the contractions in global demand centres pass into world trade. And this
cost drag persists in 2021 also.
Second Covid wave in 1Q21 As for Europe and the US, on the advice of epidemiologists, we have assumed that
but with a much more social distancing has to increase again over winter as Covid’s effective reproduction
muted economic impact rate increases. However, Asian preparedness will be even greater next year than
this and in consequence, in all our forecasts, 1H21 sees elevated year-on-year
growth numbers.
Unlike the GFC most Despite this positive base effect, there are only five countries where we have raised
countries will see a flat the 2021 growth forecast compared with the 1Q20 EoAE (China, Hong Kong,
rebound in 2021 Malaysia, Philippines and Singapore). Given the cuts in the 2020 forecast and the
amount of fiscal and monetary stimulus being deployed, this forecast represents a
very flat recovery profile. It reflects our view that, for most countries, the economic
losses inflicted by Covid will be hard to recover because of the second-round
effects on developed economy demand and the recessions we forecast in
commodity exporting economies. For balance-sheet-recession hit India, malign
domestic feedback loops are the problem.
The GFC saw synchronised The 2021 forecast has to be placed in the context of the Global Financial Crisis
destocking allowing experience. Then a trade-financing squeeze collapsed world trade and transmitted
synchronised restocking to the weakness in developed economies quickly into Asian economies. But, when the
boost 2010 growth
financing squeeze retreated year-on-year growth rates of exports accelerated
quickly because compared with the collapse in shipments end-demand had been
relatively stable. Inventories had therefore been depleted during the 2009 export
crash that had to be rebuilt in 2010.

Covid will cause a Compared with the GFC Covid will cause a much larger destruction of final demand
synchronised involuntary in trade consuming countries. There will be no destocking. On the contrary, Covid
stock build and therefore a is likely to cause an involuntary stock build suggesting that destocking will depress
synchronised inventory
overhang orders relative to sales in late 2020 and 2021. The GFC and Covid recessions do
have one thing in common, these inventory effects are synchronised across all
economies.
Figure 41 Figure 42
AxJ export growth through the GFC (USD %YoY) AxJ GDP growth through the GFC (constant prices %YoY)
2007 2008 2009 2010 2007 2008 2009 2010
Australia 16.4 27.3 -15.7 33.2 Australia 4.4 2.5 1.9 2.4
China 25.7 17.3 -15.9 31.3 China 14.2 9.7 9.4 10.6
Hong Kong 8.8 5.3 -12.2 22.5 Hong Kong 6.5 2.1 -2.5 6.8
India 23.3 29.7 -15.4 37.3 India 10.1 6.2 5.0 11.0
Indonesia 13.2 20.2 -15.0 35.5 Indonesia 6.3 6.0 4.6 7.4
Korea 14.1 13.6 -13.9 28.3 Korea 5.8 3.0 0.8 6.8
Malaysia 9.5 13.4 -21.2 26.3 Malaysia 6.3 4.8 -1.5 7.5
Philippines 6.4 (2.8) -21.7 34.0 Philippines 6.6 4.2 1.1 7.6
Singapore 10.3 13.0 -20.5 30.4 Singapore 9.0 1.9 0.1 14.5
Taiwan 10.1 3.7 -20.4 35.2 Taiwan 6.9 0.8 -1.6 10.2
Thailand 18.6 15.5 -14.3 26.8 Thailand 5.4 1.7 -0.7 7.5
Covid represents a bigger The GDP contractions that we forecast for Asian this year are worse than those that
economic shock, for Asian occurred in 2009. Then three countries saw negative full year growth (seven in our
economies, than the GFC 2020 forecasts) and the (unweighted) average slowdown from 2008 was 2.4ppts
(the 2020 average slowdown is 4.2ppts): Figure 41 and 42. Additionally the 2021
rebound we forecast is much more muted than Asia had in 2010 (5.2ppts compared
with 8.4ppts in 2010). Covid represents a bigger economic shock, for Asian
economies, than the GFC.
Figure 43
Consensus is too lagged to CLSA GDP forecasts relative to consensus

be of use (%YoY) 2017 2018 2019 2020F 2021F CLSA-consensus
2020 2021
USA 2.4 2.9 2.3 (3.1) 1.1 (4.4) (0.8)
Eurozone 2.6 1.9 1.2 (4.4) 0.8 (4.8) (0.5)
Japan 2.2 0.3 0.7 (3.4) 1.5 (2.8) 0.5
Australia 2.5 2.7 1.8 (3.1) 1.7 (5.1) (0.9)

China 6.9 6.7 6.1 3.3 7.0 (2.0) 1.2
Hong Kong 3.8 2.9 (1.2) (6.0) 3.0 (4.6) 0.7
India¹ 6.6 6.0 4.6 2.8 7.0 (3.2) na
Indonesia 5.1 5.2 5.0 3.4 5.2 (1.6) 0.0
Korea 3.2 2.7 2.0 (0.1) 2.6 (1.8) 0.2
Malaysia 5.7 4.7 4.3 (3.9) 4.0 (7.9) (0.6)
Philippines 6.7 6.2 5.9 0.7 6.7 (5.3) 0.3
Singapore 4.3 3.4 0.7 (2.5) 5.0 (3.1) 3.0
Taiwan 3.3 2.7 2.7 (1.5) 2.0 (3.3) (0.7)
Thailand 4.1 4.2 2.4 (5.0) 0.8 (6.8) (2.5)

The consensus has been left The speed with which Covid has spread means that consensus estimates are
behind meaningless. Figure 43 compares our forecasts with the numbers from Bloomberg
as at 23 March. We include it only for comparability with previous editions of the
Eye on Asian Economies and we would not advise investors to pay too much
attention to it. Anecdotally street estimates are being cut aggressively with the rule
of thumb being the more recent the estimate the more dramatic the cut.
Asian inflation: Covid will be a deflationary shock

Slowing inflation first in The immediate impact of Covid on Asia is a deflationary one. In the next few
commodities and services; months, we expect that this will be most visible in commodity prices and the prices
soon in manufacturing of services. As the global demand shock is transmitted back to manufacturing
economies, it will overtake the supply interruption caused by social distancing.
Deflationary forces will then become visible in goods prices also.
Figure 44 shows our Asian inflation forecasts compared with three months ago.
Aside from China (where Covid has interrupted effects to restore pig production)
and Korea (a currency effect) we see inflation this year lower than we forecast three
months ago. Unsurprisingly, in light of our growth forecasts, it remains suppressed
in 2021 also.
Figure 44
Covid means we cut our CLSA inflation forecasts relative to 1Q20 Eye on Asian Economies
inflation forecasts (%YoY) 2017 2018 2019 2020F 2021F Chg in CLSA f'cast
in last qtr
2020 2021
USA¹ 1.8 2.1 1.4 1.5 1.8 0.0 0.0
Eurozone 1.5 1.8 1.2 0.8 1.3 0.0 0.0
Japan 0.5 1.0 0.5 0.5 0.6 (1.0) (0.4)
Australia 2.0 1.9 1.6 1.0 1.8 (0.3) (0.1)

China 1.6 2.1 2.1 4.2 1.0 2.2 (0.5)
Hong Kong 1.5 2.4 2.9 1.6 0.8 (0.2) 0.1
India² 3.6 3.4 4.8 2.8 3.6 (1.0) (0.5)
Indonesia 3.8 3.2 2.8 2.1 2.2 (0.5) (0.6)
Korea 1.9 1.5 0.4 0.9 1.7 0.3 0.5
Malaysia 3.8 1.0 0.7 0.4 0.9 (0.5) (0.6)
Philippines 2.9 5.2 2.5 1.4 2.4 (0.9) (0.4)
Singapore 0.6 0.4 0.6 (0.1) 0.2 (0.6) (0.3)
Taiwan 0.6 1.3 0.6 0.3 1.0 (0.5) (0.1)
Thailand 0.7 1.1 0.7 (0.5) 0.2 (1.2) (1.2)
¹ PCE deflator, ² Fiscal year starting April of captioned calendar year.
We suspect the consensus As with growth the consensus is lagging because of the speed with which Covid has
is falling required analysts to rejig their forecasts. The consensus numbers have almost
certainly fallen from the point at which Figure 45 is calculated. All the same, we
suspect that our inflation forecasts will remain below consensus.

Figure 45
But at present, we are CLSA inflation forecasts relative to consensus

below consensus (%YoY) 2017 2018 2019 2020F 2021F CLSA-consensus
2020 2021
USA¹ 1.8 2.1 1.4 1.5 1.8 (0.1) (0.1)
Eurozone 1.5 1.8 1.2 0.8 1.3 (0.3) (0.1)
Japan 0.5 1.0 0.5 0.5 0.6 0.0 0.0
Australia 2.0 1.9 1.6 1.0 1.8 (0.9) (0.2)

China 1.6 2.1 2.1 4.2 1.0 1.0 (1.2)
Hong Kong 1.5 2.4 2.9 1.6 0.8 (0.5) (1.5)
India² 3.6 3.4 4.8 2.8 3.6 (1.6) (0.8)
Indonesia 3.8 3.2 2.8 2.1 2.2 (1.1) (1.1)
Korea 1.9 1.5 0.4 0.9 1.7 (0.1) 0.3
Malaysia 3.8 1.0 0.7 0.4 0.9 (1.3) (1.0)
Philippines 2.9 5.2 2.5 1.4 2.4 (1.6) (0.8)
Singapore 0.6 0.4 0.6 (0.1) 0.2 (1.0) (0.9)
Taiwan 0.6 1.3 0.6 0.3 1.0 (0.6) (0.2)
Thailand 0.7 1.1 0.7 (0.5) 0.2 (1.4) (0.9)
¹ PCE deflator, ² Fiscal year starting April of captioned calendar year.
Monetary policy: Ubiquitous cuts and more

Monetary easing is The monetary policy response to Covid has been universal. All central banks that
ubiquitous we forecast, be they G3 or AxJ, have eased monetary policy in the last three months.
We expect this to continue, Figure 46 summarises our interest rate forecasts to
end-2021.
Figure 46
We forecast that there is Policy rate forecasts

more to come End-2017 End-2018 End-2019 Current End-2020 End-2021
USA¹ 1.38 2.38 1.63 0.13 0.13 0.13
Eurozone² (0.40) (0.40) (0.50) (0.50) (0.50) (0.50)
Japan² (0.10) (0.10) (0.10) (0.10) (0.10) (0.10)
Australia 1.50 1.50 0.75 0.25 0.25 0.25

China 3.00 2.64 2.28 1.72 1.25 1.25
Hong Kong 1.31 2.33 2.43 1.56 0.70 0.70
India³ 6.00 6.25 4.40 4.40 2.90 2.90
Indonesia 4.25 6.00 5.00 4.50 4.00 4.00
Korea 1.50 1.75 1.25 0.75 0.25 0.25
Malaysia 3.00 3.25 3.00 2.50 1.75 1.75
Philippines 3.00 4.75 4.00 3.25 2.75 2.75
Singapore 1.50 1.89 1.77 1.02 0.75 0.75
Taiwan 1.38 1.38 1.38 1.13 0.63 0.63
Thailand 1.50 1.75 1.25 0.75 0.25 0.25
1
Mid-point of Fed funds upper and lower bounds; 2
Overnight reserve deposit rate; 3
Fiscal year starting April of
captioned calendar year. Source: CLSA, Bloomberg
Central banks are extending Within this generalisation, we identify two separate themes. First, developed
lender of the last resort economy central banks, most obviously in the G3 but also in Korea and Australia,
facilities to everyone have quickly recognised that liquidity is sticky in periods of extreme economic
dislocation. They have addressed this by outright purchases of an increasingly wide
range of financial instruments including (and most importantly) corporate bonds.

Effectively central banks are acting as the lender of last resort to increasingly large
parts of the non-financial sector rather than the historical norm of making funding
liquidity available only to banks.
Providing liquidity on The need for such policies is highest in complex financial systems particularly those
demand is more important characterised by wholesale funded (rather than customer deposit funded) lending
than cutting its price institutions. Indeed, for countries with big shadow banks the central bank
broadening the routes through which it is able to supply funding liquidity is much
more important than the interest rate it charges on the loan. It is for this reason
that we have removed the small (and symbolic) 10bp cut that we previously forecast
for the ECB. Lagarde has quickly made it clear the direction that policy will be taken.
China and India’s large Both China and India have large shadow banking systems and the requirement for
shadow banks makes them vigilance in both countries is high. Historically China has used moral suasion to keep
vulnerable lines of credit open and it seems to be using this mechanism again. We would favour
more direct intervention both on the grounds of clarity and because the tight credit
environment reported by China’s SMEs in 2018 and 2019 shows that moral suasion
has its limits. India represents a more obvious risk, ensuring that funding stays
available for India’s NBFCs should be one of the Reserve Bank of India’s primary
objectives.
Rate cuts to continue Elsewhere in the region, where credit supply is more dominated by fractional
reserve banks, rate cuts will continue to be central. Nominal rates need to be
reduced to offset slowing cash flow growth as both growth and inflation slow. We
forecast that rates will continue to be cut across the region.
Exchange rates: A mid-year USD peak

As the global funding As financial systems have come under stress, the USD as a funding currency has
currency the USD has been been in strong demand and bid upwards. It was already in the top decile of its post
bid higher GFC trading range and at the time of writing DXY is close to its 2016 high: Figure
47. Swap spreads are off their pre-QE peak but remain elevated: Figure 48.
Figure 47 Figure 48
DXY weekly USD FRA-OIS spread

110 90 (bp)
(DXY)
105 80
100 70
95 60
90 50
85 40
80 30
75
20
70
10
65
0
60 Jan Feb Mar Ap r May Jun Jul Au g Sep Oct Nov Dec Jan Feb Mar
10 11 12 13 14 15 16 17 18 19 20 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20
Pro-active central bank The experience of the Global Financial Crisis shows that demand for USD funding
policy is limiting this but keeps the USD well bid. We therefore see the USD stronger on a 3-month horizon.
will not remove it, USD to The impact of Covid on global growth expectations will be at its peak around the
continue to strengthen
middle of the year. We do not expect the scale of the appreciation from current

levels that characterised the GFC, even so, we expect the USD to test
USD1.05/EUR in the coming three months. Only the JPY will be a consistent
outperformer of the USD. It is performing well through the Covid pandemic and we
see the yen at JPY100/USD by the end of the second quarter.
This suggests a mid-year At these levels, the USD will be overbought and, as the hard lockdowns of 2Q start
USD peak. At this point, to be moderated and economic activity restarts, the USD will retrace. The risk
some currencies will be aversion we forecast for 2Q and which has already been seen through 1Q will move
heavily oversold
some currencies a long way compared with previous trading ranges. AUD stands
out here. So too does CNY (in the context of its lower volatility) where we see the
exchange rate mid-year at CNY7.20/USD, this is the limit of what we believe the
PBoC regards as acceptable.
Scope for Asian currency The scope for Asian currency recovery as worst-case scenarios get dialled back
recovery in 2H20 varies varies. Figure 50 shows our end-2020 forecasts relative to our end-2Q20 (worst
point) forecasts. China should fare well. Though fiscal policy was not able to
mitigate the 1Q effects of Covid it should be highly effective in compensating for
the consequent export weakness (see pp15-17). This should also benefit the AUD
(which as a floating exchange rate will experience a much greater appreciation than
the CNY itself).
We expect Asean In comparison, we expect Asean currencies to fare poorly, as these countries were
currencies to fare poorly weakening going into Covid and dealing with the pandemic is testing their
government’s response.
INR also India also. Pre-Covid data were weak, delivering negative surprises as domestic
credit growth contracted. The INR has, in any case been in a persistent downward
channel over the entire post-GFC period. From first principles, India should be
among the biggest beneficiaries from cheap oil. However, this argument has not
back-tested well in explaining INR/USD moves: Figure 49. On our pessimistic Indian
growth forecast (see pp38-39) we fear the currency will remain an underperformer.
JPY to underperform The JPY will be the biggest second half underperformer. Its attractions as a safe
haven asset will have pushed it to unsustainable levels by mid-year. We expect that
current trading ranges will be re-established by end-2020.
Figure 49 Figure 50
INR and oil prices End-2020 forecast appreciation/(depreciation) from end-2Q20

80 (INR/USD) (USD/bbl) 140
USD/A UD 27.3%
75 USD/GBP 18.2%
120
USD/EUR 15.0%
70 KRW/USD 13.0%
100
SGD/USD 7.1%
65
80 TWD/ USD 3.3%
60 CNY/USD 2.9%
60 IDR/USD 1.5%
55 THB/USD 0.7%
40 MYR/ USD 0.4%
50
INR/USD -0.2%
45 20 PHP/ USD -0.3%
INR/USD LHS Oil p rice RHS
HKD/ USD -0.6%
40 0 (%)
JPY/ US D -9.1%
Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan
10 11 12 13 14 15 16 17 18 19 20 -15% -10% -5% 0% 5% 10% 15% 20% 25% 30%
Source: CLSA, Bloomberg Source: CLSA

Figure 51 summarises our Asian forecasts to the end of 2021.
Figure 51
Currency forecasts
Period end 2017 2018 2019 2020F 2021F Coming 12 months by quarter
2Q20F 3Q20F 4Q20F 1Q21F
USD/EUR 1.20 1.15 1.12 1.15 1.15 1.00 1.15 1.15 1.10
JPY/USD 112.7 109.7 108.6 110.0 105.0 100.0 110.0 110.0 105.0
USD/GBP 1.35 1.28 1.33 1.30 1.30 1.10 1.27 1.30 1.25
USD/AUD 0.78 0.70 0.70 0.70 0.65 0.55 0.65 0.70 0.65
CNY/USD 6.51 6.87 6.96 7.00 7.00 7.20 7.00 7.00 7.10
HKD/USD 7.81 7.82 7.79 7.80 7.80 7.75 7.77 7.80 7.80
INR/USD 63.93 69.79 71.27 77.15 78.50 77.00 77.30 77.15 77.30
IDR/USD 13,548 14,481 13,901 16,250 15,750 16,500 16,400 16,250 16,125
KRW/USD 1,071 1,118 1,156 1,150 1,150 1,300 1,200 1,150 1,200
MYR/USD 4.06 4.14 4.09 4.45 4.54 4.47 4.46 4.45 4.50
PHP/USD 49.92 52.72 50.74 53.00 54.25 52.85 53.10 53.00 53.35
SGD/USD 1.34 1.36 1.35 1.40 1.36 1.50 1.40 1.40 1.40
TWD/USD 29.95 30.59 29.99 30.50 30.00 31.50 30.50 30.50 30.00
THB/USD 32.67 32.71 30.22 33.50 33.80 33.75 33.55 33.50 33.75
More variation will appear The base case of Covid returning early in 2021 will mean another flight to quality in
in 2021 1Q21 even if aggressive blanket enforcement of social distancing is not required.
However, the magnitude should be much lower under our assumptions that economies
and health systems will be better prepared and, for most of 2021 it is the weakness of
global trade and the accumulated impact that this has on trade-driven economies that
matters more. This view leaves most Asian currencies lacklustre versus a still robust
USD. Figure 52 summarises our forecasts to end-2020 from the current spot rate, with
the 2021 forecast in Figure 53.
Figure 52 Figure 53
End-2020 forecast appreciation/(depreciation) from spot End-2021 forecast appreciation/(depreciation) from end 2020
USD/A UD 14.3% JPY/ US D 4.8%

KRW/USD 6.5% IDR/USD 3.2%
USD/GBP 4.6% SGD/USD 2.9%
USD/EUR 4.0% TWD/ USD 1.7%
SGD/USD 1.9% KRW/USD 0.0%
CNY/USD 1.4% HKD/ USD 0.0%
IDR/USD 0.5% CNY/USD 0.0%
HKD/ USD -0.6% USD/GBP 0.0%
TWD/ USD -0.8% USD/EUR 0.0%
JPY/ US D -1.8% THB/USD -0.9%
INR/USD -2.0% INR/USD -1.7%
THB/USD -2.4% MYR/ USD -2.0%
MYR/ USD -2.8% PHP/ USD -2.3%
PHP/ USD-3.9% (%) USD/A UD-7.1% (%)
-5.0% 0.0% 5.0% 10.0% 15.0% 20.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0%
Source: CLSA, Bloomberg Source: CLSA

Asian forecast summary

Real GDP growth (%YoY) Inflation (%YoY)
(average) 2018 2019 2020F 2021F (average) 2018 2019 2020F 2021F
Australia 2.7 1.8 (3.1) 1.7 Australia 1.9 1.6 1.0 1.8
China 6.7 6.1 3.3 7.0 China 2.1 2.1 4.2 1.0
Hong Kong 2.9 (1.2) (6.0) 3.0 Hong Kong 2.4 2.9 1.6 0.8
India¹ 6.0 4.6 2.8 7.0 India¹ 3.4 4.8 2.8 3.6
Indonesia 5.2 5.0 3.4 5.2 Indonesia 3.2 2.8 2.1 2.2
Korea 2.7 2.0 (0.1) 2.6 Korea 1.5 0.4 0.9 1.7
Malaysia 4.7 4.3 (3.9) 4.0 Malaysia 1.0 0.7 0.4 0.9
Philippines 6.2 5.9 0.7 6.7 Philippines 5.2 2.5 1.4 2.4
Singapore 3.4 0.7 (2.5) 5.0 Singapore 0.4 0.6 (0.1) 0.2
Taiwan 2.7 2.7 (1.5) 2.0 Taiwan 1.3 0.6 0.3 1.0
Thailand 4.2 2.4 (5.0) 0.8 Thailand 1.1 0.7 (0.5) 0.2
Current account balance (USD bn) Current account balance (% GDP)

(total) 2018 2019 2020F 2021F (average) 2018 2019 2020F 2021F
Australia (29.3) 7.1 6.0 13.7 Australia (2.1) 0.5 0.4 1.0
China 49.1 177.7 181.4 144.7 China 0.4 1.3 1.3 0.9
Hong Kong 13.5 20.2 24.0 25.7 Hong Kong 3.7 5.5 6.9 7.2
India¹ (57.2) (26.3) 7.0 (19.1) India¹ (2.1) (0.9) 0.2 (0.6)
Indonesia (30.6) (30.4) (26.7) (31.5) Indonesia (2.9) (2.7) (2.6) (2.9)
Korea 77.5 59.0 66.8 60.6 Korea 4.5 3.6 4.3 3.6
Malaysia 7.6 12.0 1.9 (2.3) Malaysia 2.1 3.3 0.6 (0.7)
Philippines (8.8) (0.5) 1.9 (2.2) Philippines (2.7) (0.1) 0.5 (0.6)
Singapore 64.1 63.1 70.2 87.6 Singapore 17.2 17.0 20.8 23.6
Taiwan 70.8 64.4 55.9 50.3 Taiwan 11.5 10.5 9.3 8.0
Thailand 28.5 37.3 23.3 19.7 Thailand 5.6 6.9 4.8 4.1
Exchange rates (vs USD) Policy rates (%)

(y/e) 2018 2019 2020F 2021F (y/e) 2018 2019 2020F 2021F
Australia² 0.70 0.70 0.70 0.65 Australia 1.50 0.75 0.25 0.25
China 6.87 6.96 7.00 7.00 China 2.64 2.28 1.25 1.25
Hong Kong 7.82 7.79 7.80 7.80 Hong Kong 2.33 2.43 0.70 0.70
India¹ 69.17 75.20 77.30 79.00 India¹ 6.25 4.40 2.90 2.90
Indonesia 14,481 13,901 16,250 15,750 Indonesia 6.00 5.00 4.00 4.00
Korea 1,118 1,156 1,150 1,150 Korea 1.75 1.25 0.25 0.25
Malaysia 4.14 4.09 4.45 4.54 Malaysia 3.25 3.00 1.75 1.75
Philippines 52.72 50.74 53.00 54.25 Philippines 4.75 4.00 2.75 2.75
Singapore 1.36 1.35 1.40 1.36 Singapore 1.89 1.77 0.75 0.75
Taiwan 30.59 29.99 30.50 30.00 Taiwan 1.38 1.38 0.63 0.63
Thailand 32.71 30.22 33.50 33.80 Thailand 1.75 1.25 0.25 0.25
¹ Fiscal year starting April of captioned calendar year; ² Rates are quoted in USD/AUD. Source: CLSA

Australia EoAE Forecasts - 2Q20
Powerful Covid feedback loops

 Australia is not strongly correlated with world trade; it therefore suffers less than manufacturing-driven economies
from the global demand shock that Covid has created. Its commodity exporters will however be hit by weak prices.
 That said policies to contain the virus have had to be aggressive and have hit Australia’s dominant service economy
hard. And high levels of household debt represent a potent feedback loop as unemployment rises.
 2020 growth forecast cut to -3.1%, a much deeper recession than the GFC and one that justifies the government and
the central bank’s aggressive policy response. The 1.7% growth we expect for 2021 is flattered by a big base effect.
Growth
The hard stop to the Aussie As the Covid pandemic has evolved, it has been necessary to cut our Australian
service economy means -3.1% forecast. The virus is spreading more slowly than in northern hemisphere countries
GDP growth this year
(suggesting weather helps) but it has still been necessary to enforce harsh travel,
entertainment and food and beverage restrictions. As elsewhere, conditions in the
service economy have worsened fastest and Australia is a service-led economy. Its
non-service economy is dominated by commodity industries and is therefore
suffering a terms of trade loss as commodity prices have fallen. And, it should not
be forgotten, before Covid, Australia’s extreme bush fires had delivered a
substantial economic shock. We cut our 2020 growth forecast to -3.1%.
Australia is not strongly However, unlike most countries we forecast, Australia is not world trade correlated.
correlated with world trade The main issue that the government has to deal with is therefore the pandemic
But high levels of debt
itself. Certainly, feedback loops are powerful; levels of mortgage debt are high and
represent a feedback loop that potentially sensitive to the unemployment rate. In consequence, fiscal policy has
could prolong the Covid impact become sharply more expansionary with an AUD66bn package announced on 22
March on top of AUD17.6bn on 12 March (a third is already being trailed by the
This justifies the aggressive
PM). Additionally the government will allow an AUD20k withdrawal of pension
monetary & fiscal response savings for those made unemployed by Covid. These numbers will not stop the
economy contracting this year. But, they should contain second round effects. We
To allow a rebound in 2021 expect growth to increase to 1.7% but this is flattered by a substantial base effect.
Inflation
We expect 1.0% in 2020 and 1.8 in 2021. Not a policy issue.
Monetary policy and exchange rate

RBA has stepped in quickly The RBA cut rates to 0.25% and started QE to achieve a yield curve target of 0.25%
with QE + yield curve control for 3-year government bonds on 19 March. It also announced 3-year LTROs to
banks contingent on them lending to SMEs and is working with the Treasury to
create an AUD15bn direct investment program in mortgage and asset backed
securities. It has subsequently expanded its purchases to include state debt. We do
not expect the yield curve target to change in 2020. Next year it arguably could pull
back from exceptional measures, in reality exit will be difficult.
AUD is oversold but don’t The AUD dropped below USD0.60/AUD on the USD funding squeeze and falling
chase rallies past commodity prices. We see further near-term downside, to a mid-year target of
USD0.70/AUD
USD0.55/AUD, but around these levels the AUD is cheap. A firmer 2H20 for
commodity prices should allow the AUD to return to its pre-Covid range, around
USD0.70/USD. We would not chase past this level. Weak global manufacturing
means commodity prices and the Aussie will be fragile through 2021.
The RBA and consensus CLSA vs The Street

forecasts for growth are deeply GDP Inflation Policy rate USD/AUD
historical
Government (2020) 2.3 (2020) 1.8 n.a n.a.
Consensus (2020) 2.0 (2020) 1.9 (end-20) 0.40 (end-20) 0.68
CLSA (2020) -3.1 (2020) 1.0 (end-20) 0.25 (end-20) 0.70

Australia EoAE Forecasts - 2Q20
Australia by numbers
2014 2015 2016 2017 2018 2019 2020F 2021F
Breakdown of real GDP
Private consumption 2.5 2.4 2.6 2.5 2.6 1.4 (4.3) 1.6
Public consumption 0.7 3.9 5.2 3.9 4.0 5.2 5.8 3.7
GFCF (2.4) (4.1) (2.3) 3.6 2.5 (2.4) (13.5) (0.7)
Domestic demand (contr. to growth) 1.0 1.1 1.9 2.9 2.9 1.0 (4.4) 1.5
Exports, goods & services 6.9 6.3 6.9 3.7 5.0 3.2 (2.2) 2.4
Imports, goods & services (1.4) 1.7 0.3 7.8 4.2 (1.2) (8.8) 1.7
Real GDP growth 2.6 2.3 2.8 2.5 2.7 1.8 (3.1) 1.7
Prices
Consumer prices (y/e) 1.6 1.7 1.4 2.0 1.8 1.8 1.1 1.9
Consumer prices (average) 2.5 1.5 1.3 2.0 1.9 1.6 1.0 1.8
Producer prices (y/e) 1.1 1.9 0.7 1.7 2.0 1.4 0.8 0.9
Currency & interest rates
USD/AUD (y/e) 0.82 0.73 0.72 0.78 0.70 0.70 0.70 0.65
USD/AUD (average) 0.90 0.75 0.74 0.77 0.75 0.69 0.63 0.66
Cash target rate (% y/e) 2.50 2.00 1.50 1.50 1.50 0.75 0.25 0.25
Average mortgage rate (% y/e) 5.35 5.50 5.20 5.28 5.36 4.71 4.51 4.51
External sector
Exports (USD, % YoY) (5.4) (21.8) 2.5 20.0 11.3 5.5 (14.4) 7.2
Imports (USD, % YoY) (3.5) (13.1) (4.1) 11.2 7.1 (5.7) (17.4) 4.7
Trade balance (USD bn) 2.2 (19.0) (5.8) 10.5 20.9 48.6 48.3 56.3
Current account balance (USD bn) (45.4) (57.0) (41.1) (35.8) (29.3) 7.1 6.0 13.7
- as a % of nominal GDP (3.1) (4.6) (3.3) (2.5) (2.1) 0.5 0.4 1.0
FDI (USD bn) 40.6 38.6 46.0 39.2 61.4 30.9 33.0 31.7
CA + net FDI (% GDP) (0.3) (1.5) 0.3 0.3 2.2 2.7 3.2 3.5
International reserves (USD bn, y/e) 53.9 45.7 53.6 66.6 53.9 58.7 64.7 77.1
Money supply
Money supply M1 (y/e) 11.7 13.9 8.3 9.0 2.4 22.2 0.9 4.2
Money supply M3 (y/e) 7.1 5.9 6.7 4.5 2.4 2.4 2.5 1.5
Private sector credit (y/e) 5.5 6.8 5.6 5.2 4.7 1.5 (3.5) 6.3
Private sector credit (% GDP) 144.5 151.6 150.0 151.9 150.7 146.9 143.2 148.5
Government sector
General gov’t balance (% GDP) (2.7) (2.5) (2.3) (2.0) (0.3) 0.1 (5.0) (3.5)
General gov’t debt (% GDP, y/e) 61.5 64.2 68.3 65.6 66.1 62.5 68.0 70.0
Nominal GDP
Nominal GDP (USD bn) 1,455.7 1,233.4 1,268.2 1,387.0 1,419.1 1,384.4 1,212.6 1,312.4
Nominal GDP per capita (USD) 61,932 51,712 52,381 56,385 56,783 54,521 47,003 50,070
Nominal GDP (AUD bn) 1,614.0 1,640.4 1,703.5 1,808.5 1,900.2 1,994.9 1,938.2 2,001.0
Nominal GDP (AUD, % YoY) 2.9 1.6 3.8 6.2 5.1 5.0 (2.8) 3.2
Other data
Industrial production 4.6 1.7 1.9 1.2 3.7 2.6 (8.2) 0.1
Retail sales 5.5 4.5 3.4 2.7 3.0 2.7 (3.7) 4.5
Unemployment (% y/e) 6.3 5.8 5.7 5.5 5.0 5.2 9.2 10.2
Population (millions) 23.5 23.9 24.2 24.6 25.0 25.4 25.8 26.2
Note: % YoY rates unless otherwise stated. Fiscal deficit estimates are for the fiscal year ending in June. eg, 2015/16 is under 2016. Source: ABS, RBA, OECD
Currency forecast
2017 2018 2019 2020F 2021F 2Q20F 3Q20F 4Q20F 1Q21F
USD/AUD 0.78 0.70 0.70 0.70 0.65 0.55 0.65 0.70 0.65
JPY 100/AUD 88.0 76.8 76.3 77.0 68.3 55.0 71.5 77.0 68.3
GBP/AUD 0.58 0.55 0.53 0.54 0.50 0.50 0.51 0.54 0.52
EUR/AUD 0.65 0.61 0.63 0.61 0.57 0.55 0.57 0.61 0.59

China EoAE Forecasts - 2Q20
Restoring growth to trend ASAP

 China’s aggressive Covid response clears the way for a 2Q20 improvement at the expense of -5% YoY GDP growth in
1Q. China does not escape our base case of a second Covid wave in 2021 but the impact will be smaller.
 The authorities are committed to restoring 2020 growth to trend as quickly as possible. We forecast 6-6.5% YoY in
2H20 meaning that the 2020 full year figure will be about 3.3% YoY. Base effect adds about 2ppt to the 2021 forecast.
 Restoring growth to trend will take continued monetary (RRR & rate cuts) and fiscal stimulus, not just to accelerate the
recovery from Covid but also to insulate China from weak global demand. This however has been done before.
Growth
-5% YoY first quarter growth Monthly data for January and February crashed with policy-linked sectors as weak
as private businesses. Neither countercyclical fiscal nor monetary policy is effective
Recovery to trend by 2H leaves
CY2020 growth 3.3%
during lockdown and we expect 1Q GDP growth of -5% YoY. Measures are now in
hand to reverse the slowdown and restore growth to trend ASAP. Focus has
broadened from simply ensuring that the economy recovers from Covid to
offsetting the effect of the global demand shock. In this China has form. Thanks to
aggressive (and frequent) countercyclical policy, the correlation of China’s GDP
growth to world trade is low at 32%. The Politburo announced that it would issue
special treasury bonds for only the third time in 23 years on 27 March and
infrastructure investment will form the centre of the stimulus. We expect it will
start to be visible quickly and forecast GDP growth around 5½% YoY in 2Q,
averaging a little over 6% YoY in 2H20, for a 3.3% full year outturn.
Base effect to boost 1Q21 and Our base case is that Covid requires a second bout of increased social distancing
2021 growth policies in 1Q21. However, a more rapid reaction should allow the measures to
contain it to be much less draconian. It will still depress 1Q21 compared with 4Q20
but, on a YoY basis, 1Q21 growth should hit double digits because of the weak 1Q20
base. China is one of only four countries where our 2021 forecast has increased.
Inflation
Food inflation is taking longer Covid has interrupted efforts to rebuild China’s pig supply and food price inflation
to normalise but is not a is still high. This will persist and inflation will only fall below 3% in autumn. However,
constraint on policy
the pork price shock is neither relevant for monetary policy nor indicative of
broader inflationary conditions. Broad pricing power is minimal and Covid has
caused service price inflation to fall below 1%, for the first time since January 2010.

Monetary and fiscal policy to The PBoC cut RRR by 0.5-1bp on 13 March and signalled that banks should use the
be eased liquidity to direct funds to smaller businesses. Relative to the liquidity unleashed in
western markets, monetary policy seems low key. However, tight Party control
means the risk of a credit contraction is lower in China than in other countries. And
the easing pace will increase. We see 1.5-2ppts of cuts in RRR depressing short-
The risk of a credit contraction dated money market rates and 40bp of cuts in the 1-year MLF rate, implying LPR
is lower in China than
elsewhere
at 3.65%. As noted, fiscal expansion plans have been increased and the deficit,
which was 5% of GDP on MoF data in 2019, will leap in 2020.
Continued global demand for USD funding means the CNY will depreciate to mid-
year. Thereafter it should recover. We do not envisage the CNY being a major driver
of either investor sentiment or government policy to end-2021.
Consensus numbers are out of CLSA vs The Street

date, anecdotally ultra-low GDP Inflation 1-year MLF rate CNY/USD
estimates are proliferating
Government (2020) n.a. (2020) n.a. n.a n.a.
CLSA (2020) 3.3 (2020) 4.2 (end-20) 2.75 (end-20) 7.00

China EoAE Forecasts - 2Q20
China by numbers
2014 2015 2016 2017 2018 2019 2020F 2021F
Private consumption 8.9 9.4 9.0 7.3 7.5 5.8 3.0 8.0
GFCF 7.1 5.4 7.3 5.8 7.1 4.6 5.0 6.0
Domestic demand (contr. to growth) 7.5 6.5 7.7 6.6 7.2 5.4 4.4 7.1
Imports, goods & services 3.4 (1.9) 3.6 9.5 7.0 0.0 (1.0) 2.5
Real GDP growth 7.4 7.0 6.8 6.9 6.7 6.1 3.3 7.0
Prices
Producer prices (y/e) (3.3) (5.9) 5.5 4.9 0.9 (0.5) (3.0) 0.0
CNY/USD (y/e) 6.21 6.49 6.95 6.51 6.87 6.96 7.00 7.00
CNY/USD (average) 6.16 6.28 6.65 6.76 6.62 6.91 7.04 7.00
7-day interbank repo rate (% y/e) 4.20 2.49 2.60 3.00 2.64 2.28 1.25 1.25
1 year MLF rate (% y/e) n.a. n.a. 3.00 3.25 3.30 3.25 2.75 2.65
External sector
Exports (USD, %YoY) 4.4 (4.5) (7.2) 11.4 9.1 0.5 (10.0) (1.0)
Imports (USD, %YoY) 1.1 (13.4) (4.2) 16.0 16.2 (2.7) (4.0) (2.0)
Trade balance (USD bn) 435.0 576.2 488.9 475.9 395.2 462.8 298.5 314.4
Current account balance (USD bn) 236.0 304.2 202.2 164.9 49.1 177.7 181.4 144.7
- as a % of nominal GDP 2.3 2.8 1.8 1.4 0.4 1.3 1.3 0.9
FDI (USD bn) 145.0 68.1 (41.7) 27.8 107.0 59.1 5.0 10.0
CA + net FDI (% GDP) 3.7 3.4 1.4 1.6 1.1 1.7 1.3 1.0
International reserves (USD bn, y/e) 3,843.0 3,330.4 3,010.5 3,140.0 3,072.7 3,107.9 3,044.3 3,099.0
Money supply
Money supply M1 (y/e) 3.2 15.2 21.4 11.8 1.5 4.4 7.9 8.6
Money supply M2 (y/e) 12.2 13.3 11.3 8.1 8.1 8.7 7.7 10.7
TSF (net change CNYtn) 16.5 15.4 17.8 22.4 19.3 25.6 34.1 35.6
TSF (y/e) 14.3 12.6 30.5 14.1 10.3 10.7 13.6 12.5
TSF (% GDP) 191.6 201.6 243.9 250.9 252.2 258.6 280.0 290.0
Government sector
General gov’t balance (% GDP) (2.1) (2.4) (2.9) (2.9) (2.6) (5.0) (12.0) (9.0)
Nominal GDP
Nominal GDP (USD bn) 10,407 10,923 11,132 12,150 13,600 14,069 14,478 15,813
Nominal GDP (CNY bn) 64,128 68,599 74,006 82,075 90,031 97,186 101,923 110,692
Nominal GDP (CNY, %YoY) 8.1 7.0 7.9 10.9 9.7 7.9 4.9 8.6
Other data
Industrial production 8.3 6.1 6.0 6.6 6.2 5.7 0.4 7.4
Retail sales 12.0 10.7 10.4 10.2 9.1 8.0 3.0 7.0
Unemployment (% y/e) 5.1 5.1 5.1 5.0 4.9 5.2 5.5 5.2
Population (millions) 1,368 1,375 1,383 1,390 1,395 1,400 1,404 1,408
Note: % YoY rates unless otherwise stated. Source: IMF, World Bank, China Economic News, CEIC
Currency forecast
2017 2018 2019 2020F 2021F 2Q20F 3Q20F 4Q20F 1Q21F
CNY/USD 6.51 6.87 6.96 7.00 7.00 7.20 7.00 7.00 7.10
CNY/JPY 100 5.77 6.26 6.41 6.36 6.67 7.20 6.36 6.36 6.76
CNY/GBP 8.79 8.76 9.23 9.10 9.10 7.92 8.89 9.10 8.88
CNY/EUR 7.81 7.88 7.81 8.05 8.05 7.20 8.05 8.05 7.81

Hong Kong EoAE Forecasts - 2Q20
Punch drunk
 Hong Kong would be contracting even without Covid. With it, the only question is how big the contraction will be. We
forecast -6%, unemployment will rise above 6%. Retail sales values will be about half last year’s (depressed) level.
 Hong Kong is the most trade-correlated economy we cover (91%) so, although government policy will help it will not be
up to the challenge of persistently weak travel, entrepot and logistics sectors. Investment and consumption to crash.
 Next year will see growth turn positive, but we fear an anaemic rebound as outward facing parts of the economy (ie
most of it) remain weak. At least currency risk is low, meaning that HKD money markets stay liquid.
Growth
A litany of negative shocks Even before Covid, we forecast that Hong Kong GDP would contract this year. The
economy must be feeling punch drunk with the series of economic hits delivered in
2020. Visitor arrivals, already low because of the protests, crashed with the Covid
surge in the Mainland. The chance of a recovery, while the pandemic escalates
internationally, is zero. In the last week the epidemic curve has started to inflect
upwards again as elements of Hong Kong’s diaspora have fled the west. This has
brought more draconian restrictions on travel and food & beverage. We expect 1Q
GDP growth to be -20% QoQ saar with no 2Q rebound.
QoQ bounce will leave activity Looking further out, we expect Covid to ease into summer. This should help resident
below year-ago levels spending. It will also allow an increase in visitor arrivals but the trough is so deep
that even a large QoQ bounce would leave activity way below year-ago levels.
Trade flows and capital flows The other hits are hard ones. First HK is an entrepot and though world trade will
to be weak rise from a 2Q trough, it will be weak in absolute terms. Second China’s policy
response to reattain trend growth (while its exports are weak) will raise its
investment rate. It is likely that Mainland capital outflows will be discouraged,
including flows into HKD assets, not that Hong Kong looks much of a safe haven.
Base effect means a Hong Kong’s fiscal resources are large and the February budget announced support
surprisingly high 2021 outturn packages equivalent to 3½% of GDP. However, even including these, Hong Kong is
the weakest country we forecast. The 2020 fiscal package is likely to support a
stronger domestic economy in 2021. But, key parts of the economy will remain
weak relative to any year but this one, and unemployment will rise. We see 3% YoY
growth in 2021; given the depth of the 2020 trough, this is anaemic.
Inflation
Negative inflation in mid-2020 Headlines will be depressed by government rebates and rent suspensions to try to
support spending. But even adjusted for these, the inflation trend is downwards.

There is little sign that the The fall in USD rates has widened the HIBOR-US LIBOR spread. In consequence,
currency board is being the HKD has been strong. We expect that the spread will narrow in coming months
stressed
by virtue of HKD rates falling. Certainly there is no evidence in either the money
markets or the HKD, that there is any speculation concerning the “peg’ breaking or
being changed. This is in contrast to the 2019 protests (though even then pressure
This is important as it implies on the HKD was light). We expect this to continue. It is an important economic
that HK banks will be able to
access USD funding liquidity
positive in that it implies that USD liquidity created by the Fed can transmit
efficiently into HKD funding liquidity for the Hong Kong banking system.
The consensus is “just” the CLSA vs The Street

weak end to 2019 and the GDP Inflation 3 month HIBOR HKD/USD
protests. Big downgrades
Government (2020) -0.5 (2020) 1.7 n.a n.a.
pending
Consensus (2020) -1.4 (2020) 2.1 (end-20) 1.03 (end-20) 7.80
CLSA (2020) -6.0 (2020) 1.6 (end-20) 0.70 (end-20) 7.80

Hong Kong EoAE Forecasts - 2Q20
Hong Kong by numbers

2014 2015 2016 2017 2018 2019 2020F 2021F
Private consumption 3.3 4.8 2.0 5.5 5.3 (1.1) (5.7) 2.2
GFCF (0.1) (3.2) (0.1) 3.1 1.7 (12.3) (19.8) (2.5)
Domestic demand (contr. to growth) 2.8 1.4 2.5 5.0 4.4 (3.5) (5.7) 2.5
Exports, goods & services 1.0 (1.4) 0.7 5.8 3.7 (5.6) (14.0) 0.5
Imports, goods & services 1.0 (1.8) 0.9 6.6 4.5 (6.8) (14.0) 0.2
Real GDP growth 2.8 2.4 2.2 3.8 2.9 (1.2) (6.0) 3.0
Prices
HKD/USD (y/e) 7.75 7.75 7.76 7.81 7.82 7.79 7.80 7.80
HKD/USD (average) 7.75 7.75 7.76 7.79 7.84 7.84 7.79 7.80
3-month HIBOR (% y/e) 0.38 0.39 1.02 1.31 2.33 2.43 0.70 0.70
External sector
Domestic exports (USD, % YoY) 1.7 (15.1) (9.0) 1.5 5.2 3.5 (17.2) (5.2)
Re-exports (USD, % YoY) 3.2 (1.4) (0.7) 7.8 6.9 (4.1) (8.6) 1.3
Exports (USD, % YoY) 3.2 (1.6) (0.8) 7.6 6.9 (3.9) (8.8) 1.2
Imports (USD, % YoY) 4.0 (3.9) (1.3) 8.3 7.9 (6.4) (12.8) 0.1
Trade balance (USD bn) (70.8) (57.5) (54.5) (61.9) (71.8) (54.6) (26.3) (24.6)
FDI (USD bn) (11.1) 102.5 57.7 24.0 22.0 1.2 (6.1) (16.4)
CA + net FDI (% GDP) (2.4) 36.5 21.9 11.6 9.8 5.8 5.2 2.6
Money supply
Money supply M1 (y/e) 13.1 15.4 12.3 9.8 (0.4) 2.6 5.2 8.4
Money supply M2 (y/e) 9.5 5.5 7.7 10.0 4.3 2.8 2.8 6.0
HKD bank lending (y/e) 10.9 3.8 7.9 19.7 8.9 6.6 (4.5) 8.9
HKD bank lending (% GDP) 177.1 173.2 179.8 201.4 205.8 216.8 220.8 232.8
Government sector
General gov’t balance (% GDP)¹ 3.8 0.6 4.6 5.9 2.5 (1.3) (6.0) (5.0)
Nominal GDP
Nominal GDP (USD bn) 291.3 309.4 320.9 341.4 361.9 366.2 346.3 356.0
Nominal GDP (HKD bn) 2,259.0 2,398.2 2,491.2 2,660.7 2,836.3 2,868.9 2,689.4 2,776.9
Nominal GDP (HKD, % YoY) 5.7 6.2 3.9 6.8 6.6 1.1 (6.3) 3.3
Other data
Visitor arrivals 12.0 (2.5) (4.5) 3.2 11.4 (14.2) (73.3) 50.5
Retail sales (0.4) (3.6) (8.0) 2.4 8.7 (11.4) (45.4) 37.5
Unemployment (% y/e) 3.2 3.3 3.3 3.0 2.8 3.2 6.2 6.1
Note: % YoY rates unless otherwise stated. ¹ Fiscal year starting April. Source: CEIC, CLSA estimates, HK government.
Currency forecast
2017 2018 2019 2020F 2021F 2Q20F 3Q20F 4Q20F 1Q21F
HKD/USD 7.81 7.82 7.79 7.80 7.80 7.75 7.77 7.80 7.80
HKD/JPY 100 6.93 7.13 7.17 7.09 7.43 7.75 7.06 7.09 7.43
HKD/GBP 10.56 9.97 10.33 10.14 10.14 8.53 9.87 10.14 9.75
HKD/EUR 9.38 8.97 8.74 8.97 8.97 7.75 8.94 8.97 8.58

India EoAE Forecasts - 2Q20
One crisis after another

 Recovery after the NBFC crisis was expected to be prolonged by a lengthy period of corporate deleveraging and
rebuilding of banks’ balance sheets. This has been interrupted by Covid for sharply slowing GDP growth in FY21.
 The GDP rebound in FY22 will be primarily a base year effect. The reality of weak balance sheets in the corporate and
banking sectors will not have changed. The thing that will have changed is a much larger fiscal overhang.
 Faced with Covid on top of a balance sheet recession, the RBI finally reacted with a 75bp rate cut. The dual economic
crisis warrants negative real interest rates which, as inflation falls, will require another 150bp rate cut to 2.90%.
Growth
Rebuilding of corporate and Economic growth slowed sharply with the credit and investment downturn
bank balance sheets has been triggered by the NBFC crisis. Recovery was expected to be prolonged by a lengthy
interrupted by Covid
period of corporate deleveraging and rebuilding of banks’ balance sheets. This has
been interrupted by the economic disruption wrought by the Covid epidemic. We
are forecasting on the presumption of an extensive outbreak in India which curtails
consumption and production in both rural and urban areas. The fiscal relief
packages will be effective mostly in limiting second round effects of Covid (business
failures, job losses) but will not prevent a sharp slowdown in growth. We forecast
2.8% GVA growth in FY21 from an estimated 4.6% growth in FY20.
Covid impact will be most The Covid impact will be most severe in 2Q20 with activity rebounding in
severe in 2Q20, the rebound subsequent quarters. The rebound will be reflected in the GDP estimate for FY22,
will be reflected in FY22 GDP
rather than FY21. We forecast 7.0% GVA growth in FY22, an impressive headline
but primarily a base year effect with little QoQ acceleration in growth. The
economic reality of weak balance sheets in the corporate and banking sectors will
not have changed. The thing that will have changed, for the worse, is a much larger
fiscal overhang. This will not be fully reflected in the central government account
but will be evident by sharply rising general public debt above 80% of GDP in FY22.
Inflation
Covid fears finally triggered an Inflation was already heading down from the 7.6% YoY peak in January 2020 with
RBI response with a dramatic our expectation that it would trend towards the core rate close to 4%. Covid will
75bp cut on 27 March
cause supply and logistics disruption but its overall impact will be deflationary
through weakening domestic demand and declining fuel prices. We forecast a fall
in average inflation below 3% in FY21 from an estimated 4.8% in FY20. An expected
rebound in FY22 will still leave average inflation below 4%. The recent inflation
spike dissuaded RBI from cutting interest rates but Covid fears finally triggered a
response with a dramatic 75bp cut to 4.4% on 27 March.
Policy and exchange rate

Doubts about a return to The policy rate had been kept on hold at 5.15% from October 2019 to March 2020.
robust economic growth will Even before Covid, we had argued that policy was inappropriately tight for this
keep the INR under pressure
depressed stage of the cycle. With inflation falling, a further 150bp cut to 2.90%
(more than previously forecast) will be needed for negative real rates and for
maintaining liquidity. What is the exchange rate outlook? The current account will
swing from deficit to surplus in FY21 (first time in 17 years) on domestic demand
weakness and falling oil prices. This will mitigate concerns of the expanding fiscal
deficit. However, doubts about a return to robust economic growth will keep the
INR under pressure with depreciation predicted both in FY21 and FY22.
The RBI explicitly refrained CLSA vs The Street

from giving a GDP and inflation GDP Inflation Policy rate INR/USD
forecast citing Covid
Government (2020) No f’cast (2020) No f’cast n.a n.a.
uncertainty but expects both to
fall sharply, as we do Consensus (2020) 6.0 (2020) 4.4 (end-20) 5.05 (end-20) 71.50
CLSA (2020) 2.8 (2020) 2.8 (end-20) 2.90 (end-20) 77.30
38 tony.nafte@clsa.com 31 March 2020

India EoAE Forecasts - 2Q20
India by numbers
FY15 FY16 FY17 FY18 FY19 FY20E FY21F FY22F
GFCF 2.6 6.5 8.5 7.2 9.8 (2.8) (3.9) 9.1
Exports, goods & services 1.8 (5.6) 5.0 4.6 12.3 (2.5) (4.3) 4.4
Imports, goods & services 0.9 (5.9) 4.4 17.4 8.6 (7.3) (9.1) 8.5
Real GVA 7.2 8.0 8.0 6.6 6.0 4.6 2.8 7.0
Prices
INR/USD (y/e) 62.59 66.33 64.84 65.04 69.17 75.20 77.30 79.00
INR/USD (average) 61.13 65.42 67.03 64.46 69.92 71.10 76.95 78.10
Repo rate (% y/e) 7.50 6.75 6.25 6.00 6.25 4.40 2.90 2.90
Reverse repo rate (% y/e) 6.50 5.75 5.75 5.75 6.00 4.00 2.50 2.65
External sector
Exports (USD, %YoY) (0.6) (15.9) 5.2 10.3 9.1 (3.8) (9.7) 2.7
Imports (USD, %YoY) (1.0) (14.1) (1.0) 19.5 10.3 (8.2) (14.4) 6.8
Current account balance (USD bn) (26.8) (22.1) (14.4) (48.7) (57.2) (26.3) 7.0 (19.1)
- as a % of nominal GDP (1.3) (1.0) (0.6) (1.8) (2.1) (0.9) 0.2 (0.6)
FDI (USD bn) 31.3 36.0 35.6 30.3 30.7 39.1 21.0 44.0
CA + net FDI (% GDP) 0.2 0.7 0.9 (0.7) (1.0) 0.4 1.0 0.8
External debt (total, USD bn) 474.7 485.1 471.3 529.3 543.2 554.1 570.7 582.1
Debt service ratio (% exports) 7.6 10.1 9.5 9.7 9.5 9.9 11.0 12.0
Money supply
Money supply M1 (y/e) 11.3 13.5 3.1 21.8 13.6 9.7 1.0 10.4
Money supply M3 (y/e) 10.9 10.1 10.1 9.2 10.5 8.8 1.2 10.9
Private sector credit (y/e) 9.3 11.4 8.9 10.8 13.4 6.0 0.6 12.5
Government sector
Central gov’t balance (% GDP) (4.1) (3.9) (3.5) (3.5) (3.4) (4.0) (5.6) (4.6)
Central gov’t debt (% GDP, y/e) 46.5 46.9 45.1 45.6 45.6 48.7 53.6 55.3
Nominal GDP
Nominal GDP per capita (USD) 1,608.9 1,639.7 1,767.7 2,018.5 2,041.6 2,138.0 2,069.4 2,176.7
Nominal GDP (INR bn) 124,680 137,719 153,917 170,983 189,712 203,403 215,500 237,254
Nominal GDP (INR, %YoY) 11.0 10.5 11.8 11.1 11.0 7.2 5.9 10.1
Other data
Population (millions) 1,267 1,283 1,299 1,314 1,329 1,344 1,358 1,373
Note: All figures % YoY growth rates, unless otherwise stated. All data refer to fiscal years ending March. Source: Reserve Bank of India, CEIC, CLSA estimates
Currency forecast
2017 2018 2019 2020F 2021F 2Q20F 3Q20F 4Q20F 1Q21F
INR/USD 63.93 69.79 71.27 77.15 78.50 77.00 77.30 77.15 77.30
INR/JPY 100 56.72 63.62 65.62 70.14 74.76 77.00 70.27 70.14 73.62
INR/GBP 86.38 89.01 94.49 100.30 102.05 84.70 98.17 100.30 96.63
INR/Euro 76.74 80.03 79.92 88.72 90.28 77.00 88.90 88.72 85.03
31 March 2020 tony.nafte@clsa.com 39

Indonesia EoAE Forecasts - 2Q20
Commodity exposure, BoP constraint

 The commodity cycle downturn and disruption to consumption and investment by the local Covid outbreak will lower
real GDP growth from the 5.0-5.2% range of the last four years to our 3.4% forecast in 2020.
 The GDP rebound off the low 2020 base will be moderated by the weak commodity cycle. Labour market deregulation
and reduced FDI barriers are crucial to our 5.2% GDP forecast in 2021.
 Exchange rate volatility has determined the gradual pace of easing. Further depreciation in 2Q20 will delay, but not
prevent, a further 50bp cut to 4%. There is potential for IDR appreciation in 2021 with the GDP rebound.
Growth
Not tied to the manufacturing Indonesia’s vulnerability to the Covid epidemic is lower than other Asian economies
supply chain but exposed to because it is less integrated into the global manufacturing supply chain. The flipside
the commodity downturn
though, is that growth in this commodity-based economy will be strongly influenced
by the commodity cycle. GDP growth will slow with the sharp decline in commodity
prices. Limited success in containing the epidemic in Indonesia will exacerbate the
economic downturn by disrupting infrastructure projects and curbing consumption.
Private consumption growth, which had been sustained at 5.0-5.2% over the last
four years, will fall to our 3.7% estimate for 2020. Investment growth, which was
slowing before Covid, will fall to our 2.0% estimate. Overall, the domestic demand
decline will lower real GDP growth to our 3.4% forecast for 2021, from 5% in 2019.
Fiscal support has been limited by the 3% of GDP regulatory cap for the fiscal
deficit; the government, citing the need for an adequate Covid response, is seeking
to raise the cap to 5% of GDP.
GDP rebound in 2021 depends The GDP rebound off the low 2020 base will be moderated by the weak commodity
on structural reforms to cycle. Mr Jokowi’s structural reforms are also crucial to our 5.2% GDP forecast.
improve the investment climate
Specifically, labour market deregulation and expanded scope for foreign investment
are needed to improve the business climate for a credit and investment revival.
Covid has triggered unexpected reform in lifting import restrictions which, if
maintained, will be an effective step towards raising manufacturing
competitiveness. The hope is that reform momentum will endure beyond the crisis.
Inflation
Inflation will be contained at Average inflation was contained below 3% in 2019 and early 2020. The Covid
the lower end of BI’s target, it impact will be deflationary both through weakening domestic demand and declining
is not a constraint on easing
fuel prices. We forecast inflation at the lower end of Bank Indonesia’s 2-4% target,
both in 2020 and 2021. Inflation will not constrain further monetary easing.

Balance of payments and Monetary policy is constrained though, by the unstable balance of payments.
exchange rate instability are Conflicting forces on the current account – the terms of trade loss from falling
the constraint on policy
commodity prices and import compression from weak domestic demand - will leave
the current account deficit at 2.6% of GDP in 2020, slightly below that in 2019. The
deficit will widen again, to 2.9% of GDP with the economic rebound in 2021.
Exchange rate volatility has The policy rate was cut by 150bp to 4.5% from June 2019 to March 2020. Exchange
determined the gradual pace of rate volatility has determined the gradual pace of easing. Further depreciation in
monetary easing
2Q20 will delay, but not prevent, a further 50bp cut to 4%. There is potential for
moderate IDR appreciation in 2021 with the investment-led GDP rebound.
The difference between BI’s CLSA vs The Street

GDP forecast above 4% and GDP Inflation Policy rate IDR/USD
our own at 3.4% reflects a
Government (BI) (2020) 4.2-4.6 (2020) 2-4 n.a n.a.
judgement on the severity of
the local Covid outbreak Consensus (2020) 5.0 (2020) 3.3 (end-20) 4.60 (end-20) 14,100
CLSA (2020) 3.4 (2020) 2.1 (end-20) 4.00 (end-20) 16,250

Indonesia EoAE Forecasts - 2Q20
Indonesia by numbers
2014 2015 2016 2017 2018 2019 2020F 2021F
Public consumption 1.2 5.3 (0.1) 2.1 4.8 3.2 6.0 3.6
GFCF 4.4 5.0 4.5 6.2 6.6 4.4 2.0 7.1
Exports, goods & services 1.1 (2.1) (1.7) 8.9 6.5 (0.9) (2.0) 2.0
Imports, goods & services 2.1 (6.2) (2.4) 8.1 11.9 (7.7) (3.4) 4.2
Real GDP growth 5.0 4.9 5.0 5.1 5.2 5.0 3.4 5.2
Prices
Producer prices (y/e) 3.2 1.8 3.3 3.1 3.0 0.5 (2.1) 2.7
IDR/USD (y/e) 12,440 13,795 13,436 13,548 14,481 13,901 16,250 15,750
IDR/USD (average) 11,975 13,548 13,267 13,406 14,276 14,188 16,080 16,000
BI policy rate (% y/e) 7.75 7.50 4.75 4.25 6.00 5.00 4.00 4.00
Base lending rate (% y/e) 12.79 12.46 11.36 10.68 10.34 10.03 9.20 9.20
External sector
Exports (USD, % YoY) (3.7) (14.9) (3.1) 16.9 7.0 (6.8) (5.8) 1.3
Imports (USD, % YoY) (4.5) (19.7) (4.4) 16.2 20.6 (8.8) (6.4) 4.0
Trade balance (USD bn) 7.0 14.0 15.3 18.8 (0.2) 3.5 4.3 0.1
Current account balance (USD bn) (27.5) (17.5) (17.0) (16.2) (30.6) (30.4) (26.7) (31.5)
- as a % of nominal GDP (3.1) (2.1) (1.8) (1.6) (2.9) (2.7) (2.6) (2.9)
FDI (USD bn) 14.7 10.7 16.1 18.5 12.5 20.0 17.0 20.5
CA + net FDI (% GDP) (1.4) (0.8) (0.1) 0.2 (1.7) (0.3) (1.0) (1.0)
Gross external financing requirement % GDP 9.5 9.0 7.8 7.0 8.3 8.6 10.3 10.7
Money supply
Money supply M1 (y/e) 6.2 12.0 17.3 12.4 4.8 7.4 2.0 9.6
Money supply M2 (y/e) 11.9 9.0 10.0 8.3 6.3 6.5 2.2 9.8
Government sector
Public sector balance (% GDP) (2.1) (2.6) (2.5) (2.5) (1.8) (2.3) (4.5) (3.4)
Public sector debt (% GDP, y/e) 24.9 27.5 28.3 29.4 29.8 30.5 35.4 38.5
Nominal GDP
Nominal GDP (USD bn) 883 851 935 1,014 1,039 1,116 1,022 1,090
Nominal GDP (IDR tn) 10,570 11,526 12,402 13,590 14,838 15,834 16,431 17,446
Nominal GDP (IDR, % YoY) 10.7 9.1 7.6 9.6 9.2 6.7 3.8 6.2
Other data
Unemployment (% y/e) 5.9 6.2 6.3 6.4 6.5 6.6 6.9 6.9
Note: % YoY rates unless otherwise stated. Ross external financing requirement is current account deficit plus debt amortisation Policy rate changed from 1-yr
BI to 7-day repo rate effective August 2016. Source: IMF, CEIC, CLSA estimates, Bank Indonesia
Currency forecast
2017 2018 2019 2020F 2021F 2Q20F 3Q20F 4Q20F 1Q21F
IDR/USD 13,548 14,481 13,901 16,250 15,750 16,500 16,400 16,250 16,125
IDR/Yen 100 12,021 13,201 12,799 14,773 15,000 16,500 14,909 14,773 15,357
IDR/GBP 18,307 18,469 18,429 21,125 20,475 18,150 20,828 21,125 20,156
IDR/Euro 16,264 16,605 15,587 18,688 18,113 16,500 18,860 18,688 17,738

Korea EoAE Forecasts - 2Q20
Covid containment but still negative growth

 Korea is an outperformer in how it has contained the virus and the direct effect of Covid on its 1H20 growth should be
more modest than we see in other countries.
 However, the exposure to the crash in global demand is high. The multiplier effects of weak exports will weaken 2H20
and 2021 growth. We see growth this year at -0.1%; +2.6% YoY for 2021 but 1ppt of this is the 1H20 base effect.
 We anticipate two further 25bp rate cuts; the BoK has committed to providing unlimited liquidity at 10bps over its
policy rate, this will be continued in July. A further supplementary budget will push government deficit over 5% GDP.
Growth
Korea has been more Korea has been one of the most successful countries in dealing with Covid. It has
successful than most in successfully flattened the epidemic curve and done so without all economic data
containing Covid
cratering. Even so, we assume a first quarter contraction of 2.2% QoQ.
But, weak exports and weak Korea is still an export driven economy (its GDP to export correlation 89%) and
business investment will growth was low in 2019 despite fiscal policy being supportive. This year will clearly
maintain pressure on growth
be worse. We forecast a 16% nominal and 8% real fall in exports of goods &
We forecast -0.1% YoY for services. Inevitably, facilities investment will drop sharply, any improvement in
2020 business sentiment in late 2019 halted. Despite the best efforts of monetary and
fiscal policy, we expect that 2020 growth will be -0.1%. The only recent comparable
year is 2009. Then Korea grew by 0.8% but the starting point is weaker this year.
Growth to accelerate to 2.6% Korea continues to struggle in 2021 though the CY21 numbers are boosted by the
YoY in 2021, with 1ppt from base effect of 1H20 weakness. Korea’s strategy of aggressively testing and therefore
weak-1H2020 base effects
isolating virus clusters means that the direct effect of a 1Q21 Covid reoccurrence will
be small (this is the model that we hope other countries adopt). But the consequent
hit to world trade and weakening global profile mean that Korea’ growth will be below
trend in 2021 also. We forecast 2.6%, of which 1ppt is 1H20 base effect. 2H21
growth will be 2% YoY requiring that fiscal policy stay accommodative for another
year and suggesting continued slack labour markets and soft consumer spending.
Inflation
Sub 1% inflation in 2020 Inflation was below 1% in 2019. It will be below 1% again in 2020 and rising in 2021
but not with any practical relevance for policy makers or investors.

By Asian standards monetary The BoK cut rates by 50bp in March. A stock market stabilisation fund has been
policy has been aggressive created (and short selling banned). KRW5tn will be extended to brokerages and
We see 2x 25bp rate cuts
KRW2tn used to buy commercial paper. Policy lenders will provide KRW58.3tn to
help smaller businesses. On 26 March the BoK further committed to supplying the
money markets with unlimited liquidity (via 3-mth repos) at 10bp over its policy
rate. This will be reviewed in July; we expect it will be extended. And we see two
additional rate cuts, taking the policy rate down to 0.25bp.
And a second supplementary A supplementary budget of KRW11.7tn was announced at end-February and has
budget just been enacted into law. A second supplementary is expected, and likely, after
the April general elections; the government deficit will therefore exceed 5% of GDP.
After being oversold mid-year, the KRW will firm up in 2H20.
Consensus and the BoK CLSA vs The Street

forecast are historical. But, our GDP Inflation Policy rate KRW/USD
expectation is that the
Bank of Korea (2020) 2.1 (2020) 1.0 n.a n.a.
persistence of below trend
growth will surprise Consensus (2020) 1.7 (2020) 1.0 (end-20) 0.95 (end-20) 1,162
CLSA (2020) -0.1 (2020) 0.9 (end-20) 0.25 (end-20) 1,150

Korea EoAE Forecasts - 2Q20
Korea by numbers
2014 2015 2016 2017 2018 2019 2020F 2021F
GFCF 3.1 5.4 6.6 9.8 (2.4) (3.3) (5.2) (0.5)
Exports, goods & services 2.1 0.2 2.4 2.5 3.5 1.7 (8.0) (0.5)
Imports, goods & services 1.3 2.1 5.2 8.9 0.8 (0.4) (10.6) (1.8)
Real GDP growth 3.2 2.8 2.9 3.2 2.7 2.0 (0.1) 2.6
Prices
Producer prices (y/e) (2.1) (4.0) 1.8 2.2 0.9 0.7 0.0 0.8
KRW/USD (y/e) 1,099 1,173 1,208 1,071 1,118 1,156 1,150 1,150
KRW/USD (average) 1,053 1,131 1,160 1,130 1,101 1,165 1,226 1,163
Call rate (% y/e) 2.00 1.50 1.25 1.50 1.75 1.25 0.25 0.25
Avg household lending rate (% y/e) 3.55 3.23 3.29 3.61 3.61 2.77 1.77 1.77
External sector
Exports (USD, % YoY) (0.8) (11.5) (5.7) 13.4 7.9 (9.5) (12.9) 1.0
Imports (USD, % YoY) (2.0) (19.8) (6.5) 18.0 10.6 (5.1) (14.1) 3.3
FDI (USD bn) (18.7) (19.6) (17.8) (16.2) (26.0) (23.3) (24.0) (24.9)
CA + net FDI (% GDP) 4.3 5.8 5.3 3.6 3.0 2.2 2.7 2.1
Money supply
Money supply M1 (y/e) 13.4 19.6 12.4 6.9 1.9 9.6 4.2 5.9
Money supply M2 (y/e) 8.1 7.5 7.5 4.7 6.8 7.9 4.9 4.9
Private sector credit (y/e) 6.5 6.7 7.1 6.6 6.9 (0.6) 4.1 6.5
Government sector
Central gov’t balance (% GDP) 0.5 (0.0) 1.0 1.3 1.6 0.1 (2.8) (2.3)
- excl social sec funds (% GDP) (1.9) (2.3) (1.3) (1.0) (0.6) (2.3) (5.1) (4.6)
Central gov’t debt (% GDP, y/e) 32.2 33.6 34.0 34.2 34.4 36.2 43.0 44.0
Nominal GDP
Nominal GDP (KRW tn) 1,562.9 1,658.0 1,740.8 1,835.7 1,893.5 1,911.5 1,910.4 1,972.9
Nominal GDP (KRW, % YoY) 4.1 6.1 5.0 5.5 3.1 0.9 (0.1) 3.3
Other data
Retail sales 2.1 2.4 3.9 3.7 5.6 1.8 (2.5) 3.8
Unemployment (% y/e) 3.6 3.5 3.6 3.7 3.9 3.6 4.2 4.1
Note: % YoY rates unless otherwise stated. Source: IMF, World Bank, Bank of Korea, CEIC
Currency forecast
2017 2018 2019 2020F 2021F 2Q20F 3Q20F 4Q20F 1Q21F
KRW/USD 1,071 1,118 1,156 1,150 1,150 1,300 1,200 1,150 1,200
KRW/JPY 100 950 1,019 1,064 1,045 1,095 1,300 1,091 1,045 1,143
KRW/GBP 1,447 1,426 1,532 1,495 1,495 1,430 1,524 1,495 1,500
KRW/EUR 1,285 1,282 1,296 1,323 1,323 1,300 1,380 1,323 1,320

Malaysia EoAE Forecasts - 2Q20
Exposed on all fronts

 Electronic exports will be hit by global trade contraction and disruption of the electronics supply chain. Commodity
exports will be hit by declining oil and commodity prices. This will lead to a 3.9% real GDP contraction in 2020.
 It is a base year effect, primarily, which lifts our real GDP forecast to 4.0% in 2021. However, this will be reinforced by
the push for sustained infrastructure spending which was included in the substantial Covid fiscal relief package.
 The policy rate will be cut by another 75bp to 1.75%. The current account surplus will narrow in 2020 and swing into
deficit in 2021. Along with the very large fiscal deficit, this will keep the exchange rate under pressure.
Growth
The Covid hit to exports and The economy was vulnerable to the Covid epidemic on a number of fronts. Exports
tourism will be exacerbated by will be hardest hit. Exports, which comprise 65% of nominal GDP, are the major
the domestic lockdown
growth driver. The export share is dominated by electronics at 38% and combined
oil & gas and palm oil at 20%. Malaysia will suffer a dual blow from Covid, firstly
through weakening global demand and disruption of the electronics supply chain
and secondly through declining oil and commodity prices. The tourism slump will
be an additional drag; tourism revenue inflows were 5.6% of GDP in 2019. The
economic impact will be exacerbated by the lockdown, although partly alleviated
by the fiscal relief measures. We forecast a 3.9% real GDP contraction in 2020.
Fiscal constraint swept away The economy will remain under pressure next year from the global demand
with a Covid stimulus downturn and oil and commodity price decline. Malaysia went into Covid with high
equivalent to 18% of GDP
public debt. The 52.5% of GDP estimate for 2019 rises to 86% of GDP with the
inclusion of government guarantees and contingent liabilities. However, any fiscal
constraint has been swept away by the new government. The previous MYR20bn
stimulus was topped up to MYR250bn, equivalent to 18% of GDP. This exaggerates
the true fiscal stimulus but, with the inclusion of payments to low income
households and infrastructure spending, the package has substance. This will
reinforce the base year effect, lifting our real GDP forecast to 4.0% in 2021.
Inflation
Inflation will not be a Subdued domestic demand has contained inflation, both headline and core, at or
constraint on further monetary below 2% for the last two years. The Covid epidemic will maintain the deflationary
easing
trend by weakening domestic demand and lowering fuel prices. We forecast
average inflation below 1% both in 2020 and 2021. Inflation will not be a constraint
on further monetary easing.

Another 75bp cut to 1.75% will Bank Negara has cut its policy rate by 50bp this year to 2.5%. In conjunction with
still leave the policy rate above the aggressive fiscal policy response, further cuts should be expected. Faced with
1% in real terms
the rapidly slowing economy, BSP will cut its policy rate by another 75bp taking the
policy rate to 1.75%, which will be 25bp lower than during the Global Financial
Crisis. On our inflation projection, this will still leave the policy rate above 1% in
real terms.
The current account swing to The current account surplus will narrow in 2020 and swing into deficit in 2021. We
deficit and large fiscal deficit expect continued MYR depreciation in 2Q20 but subsequent stabilisation in 2H20
will maintain MYR pressure
with improving international USD liquidity. However, with the large Covid stimulus
exacerbating the fiscal overhang, currency weakness should be expected in 2021.
Consensus forecasts are out of CLSA vs The Street

date. BNM revised GDP GDP Inflation Policy rate MYR/USD
forecast will be announced
Government (2020) 3.2-4.2 (2020) <2 n.a n.a.
soon, contraction anticipated
CLSA (2020) -3.9 (2020) 0.4 (end-20) 1.75 (end-20) 4.45

Malaysia EoAE Forecasts - 2Q20
Malaysia by numbers
2014 2015 2016 2017 2018 2019 2020F 2021F
GFCF 4.8 3.8 2.6 6.1 1.4 (2.1) (9.4) 7.6
Exports, goods & services 5.0 0.2 1.3 8.7 2.2 (1.1) (8.4) (1.4)
Imports, goods & services 4.0 0.8 1.4 10.2 1.3 (2.3) (6.5) 2.3
Real GDP growth 6.0 5.0 4.4 5.7 4.7 4.3 (3.9) 4.0
Prices
Producer prices (y/e) (6.5) (3.4) 6.5 0.3 (3.7) 3.5 (2.2) 1.3
MYR/USD (y/e) 3.50 4.29 4.49 4.06 4.14 4.09 4.45 4.54
MYR/USD (average) 3.27 3.90 4.14 4.30 4.03 4.14 4.40 4.50
Overnight policy rate (% y/e) 3.25 3.25 3.00 3.00 3.25 3.00 1.75 1.75
External sector
Exports (USD, % YoY) 2.6 (15.8) (5.1) 12.6 10.6 (4.3) (12.5) (1.8)
Imports (USD, % YoY) 0.7 (15.2) (3.8) 12.8 11.0 (5.5) (11.0) 2.1
Current account balance (USD bn) 14.9 9.1 7.1 9.0 7.6 12.0 1.9 (2.3)
- as a % of nominal GDP 4.3 3.0 2.4 2.8 2.1 3.3 0.6 (0.7)
FDI (USD bn) (5.4) (0.7) 3.4 3.8 2.9 2.3 0.2 1.4
CA + net FDI (% GDP) 2.7 2.8 3.5 4.0 2.9 3.9 0.7 (0.3)
Money supply
Money supply M1 (y/e) 5.7 4.1 5.6 11.0 1.2 5.8 1.6 5.7
Money supply M3 (y/e) 7.3 3.0 3.2 4.9 9.1 3.5 1.7 5.7
Government sector
Nominal GDP
Nominal GDP (MYR bn) 1,122 1,177 1,250 1,372 1,447 1,511 1,418 1,452
Nominal GDP (MYR, % YoY) 8.6 4.9 6.2 9.8 5.5 4.4 (6.2) 2.4
Other data
Industrial production 5.2 2.5 4.1 3.8 2.5 2.5 (8.0) (1.7)
Unemployment (% y/e) 3.0 3.3 3.5 3.3 3.3 3.3 4.2 4.0
Note: % YoY rates unless otherwise stated. Source: CEIC, Bank Negara Malaysia, IMF, Bloomberg, CLSA estimates
Currency forecast
2017 2018 2019 2020F 2021F 2Q20F 3Q20F 4Q20F 1Q21F
MYR/USD 4.06 4.14 4.09 4.45 4.54 4.47 4.46 4.45 4.50
MYR/JPY 100 3.60 3.77 3.77 4.05 4.32 4.47 4.05 4.05 4.29
MYR/GBP 5.49 5.28 5.42 5.79 5.90 4.92 5.66 5.79 5.63
MYR/EUR 4.87 4.75 4.59 5.12 5.22 4.47 5.13 5.12 4.95

Philippines EoAE Forecasts - 2Q20
Sharp deceleration, big rebound

 Along with Covid interruption to infrastructure spending, the hit to the economy will be largely from services including
a contraction in overseas remittances and declining BPO and tourism revenues.
 Limited fiscal capacity allows for only a moderate Covid stimulus of around 1.5% of GDP with an additional 0.5% of
GDP financing from multilateral agency loans.
 BSP reacted swiftly to Covid with a 75bp rate cut and 200bp RRR cut in 1Q20. Falling inflation and the current account
swing to surplus provide flexibility for another 50bp rate cut to 2.75% and a further 200bp RRR cut to 10%.
Growth
The hit to the economy will be The economy had strong momentum going into 2020. Infrastructure spending, held
on services, remittances, BPO up in 1H19 by delayed budget passage, rebounded in 2H19. This still left 2019
and tourism revenues
investment growth slowing to 1.5% YoY (2018: 12.9%). This year, the infrastructure
interruption has come from Covid for an anticipated 3.5% YoY investment
contraction in 2020. Private consumption will also contract sharply with the
widening Covid outbreak in the Philippines. The economy is less exposed to the
global demand shock given its relatively small export sector (30% of GDP) and will
benefit, as a net oil importer, from the oil price decline. The hit to the economy,
however, will come from services. Covid disruption will lead to contracting overseas
remittances, primarily due to declining oil revenues and falling incomes in the
Middle East (which has the largest share of Filipino worker deployment). Business
process outsourcing revenues, albeit insulated as an on-line sector, will also decline
due to global business disruption by Covid. Tourism revenues, which comprised
2.7% of GDP in 2019, will also be hit. We forecast slowing real GDP growth to 0.7%
in 2020; growth will be kept positive by the steep import contraction.
Fiscal capacity allows for only a Fiscal capacity allows for only a moderate Covid stimulus of around 1.5% of GDP
moderate Covid stimulus financed by central bank purchase of government securities through a repo
agreement. There will be additional 0.5% of GDP financing from multilateral agency
loans. We forecast a real GDP rebound to 6.7% in 2021, largely a base year effect
but reinforced by infrastructure and private consumption coming back on stream.
Inflation
Weak domestic demand and Inflation had turned down from the 2.9% YoY peak in January. The downtrend will
low oil prices will take inflation be reinforced by Covid, both through weakening domestic demand and declining oil
below 1%
prices, for an inflation fall to 0.8% by end-2020. Inflation will rebound sharply, to
3.2% by end-2021, as domestic demand recovers amid loose monetary conditions.

BSP reacted swiftly to the BSP reacted swiftly to the Covid outbreak. The 75bp rate cut in 1Q20 (for a
Covid outbreak cumulative 150bp cut since April 2019) lowered the policy rate to 3.25%. We have
another 50bp cut to 2.75% in our forecast. BSP also cut the RRR by 2ppt to 12%.
Low inflation and current The narrowing current account deficit to a marginal 0.1% of GDP in 2019 provided
account swing to surplus added flexibility for monetary easing. We forecast a current account swing to
provide monetary flexibility
surplus in 2020 as import compression from weakening domestic demand offsets
the fall in services revenues. However, domestic demand recovery will return the
current account to deficit in 2021. This, along with rising inflation, will require BSP
to move to a tightening stance towards the end of 2021.
The official GDP forecast from CLSA vs The Street

NEDA has a wide range GDP Inflation Policy rate PHP/USD
reflecting uncertainty on Covid
Government (2020) -0.6 to +4.3 (2020) 2-4 n.a n.a.
severity and timing
CLSA (2020) 0.7 (2020) 1.4 (end-20) 2.75 (end-20) 53.00

Philippines EoAE Forecasts - 2Q20
Philippines by numbers
2014 2015 2016 2017 2018 2019 2020F 2021F
GFCF 7.2 16.9 26.1 9.4 12.9 1.5 (3.5) 16.2
Imports, goods & services 9.9 14.6 20.2 18.1 16.0 2.1 (6.2) 10.2
Real GDP growth 6.1 6.1 6.9 6.7 6.2 5.9 0.7 6.7
Prices
Producer prices (y/e) (1.4) (7.4) (4.2) (1.1) 0.2 0.4 (2.6) 3.8
PHP/USD (y/e) 44.62 47.17 49.81 49.92 52.72 50.74 53.00 54.25
PHP/USD (average) 44.40 45.50 47.49 50.40 52.66 51.80 52.25 53.65
Overnight repo rate (% y/e) 4.00 4.00 3.00 3.00 4.75 4.00 2.75 2.75
Prime lending rate (%y/e) 5.69 5.73 5.67 5.78 7.02 6.54 5.25 5.25
External sector
Exports (USD, % YoY) 11.9 (13.3) (1.1) 21.2 0.3 2.7 (4.2) 6.4
Imports (USD, % YoY) 8.0 (1.0) 17.7 17.6 11.9 (3.0) (7.0) 10.0
Current account balance (USD bn) 10.8 7.3 (1.2) (2.1) (8.8) (0.5) 1.9 (2.2)
- as a % of nominal GDP 3.8 2.5 (0.4) (0.7) (2.7) (0.1) 0.5 (0.6)
FDI (USD bn) (1.0) 0.1 5.9 7.0 5.8 4.3 2.0 6.8
CA + net FDI (% GDP) 3.4 2.5 1.5 1.5 (0.9) 1.1 1.1 1.2
Gross external financing requirement % GDP 3.4 4.1 6.3 6.4 6.0 5.6 6.6 7.0
Money supply
Money supply M1 (y/e) 13.3 15.2 15.1 15.7 9.5 15.7 3.5 18.0
Money supply M3 (y/e) 11.2 9.4 12.8 11.9 9.5 11.3 3.0 17.0
Government sector
Public sector deficit (% GDP) (0.6) (0.9) (2.4) (2.2) (3.2) (3.5) (4.7) (4.8)
National gov’t debt (% GDP, y/e) 45.4 44.7 42.1 45.1 44.6 45.6 51.3 53.7
Nominal GDP
Nominal GDP (PHP bn) 12,634 13,322 14,480 15,808 17,426 18,613 19,100 20,896
Nominal GDP (PHP, % YoY) 9.5 5.4 8.7 9.2 10.2 6.8 2.6 9.4
Other data
Unemployment (% year average) 6.6 6.1 5.7 5.4 5.3 5.3 6.1 5.8
Note: % YoY rates unless otherwise stated. Overnight policy rate repositioned from 4% to 3% effective June 2016.
Source: IMF, IFS, CEIC, CLSA estimates, National Statistical Coordination Board, Philippines, Treasury, IIF
Currency forecast
2017 2018 2019 2020F 2021F 2Q20F 3Q20F 4Q20F 1Q21F
PHP/USD 49.92 52.72 50.74 53.00 54.25 52.85 53.10 53.00 53.35
PHP/JPY 100 44.30 48.06 46.72 48.18 51.67 52.85 48.27 48.18 50.81
PHP/GBP 67.46 67.24 67.27 68.90 70.53 58.14 67.44 68.90 66.69
PHP/EUR 59.93 60.46 56.90 60.95 62.39 52.85 61.07 60.95 58.69

Singapore EoAE Forecasts - 2Q20
Massive stimulus, still contracting

 Singapore has handled the Covid crisis well but as a small open economy with large entrepot, oil and tourism industries
it will contract in 2020. 2021 should be stronger even if world trade stays weak we expect 5% growth in 2021.
 This forecast includes the massive fiscal stimulus announced on 26 March. This helps support a 2021 rebound. But
Singapore is fiscally conservative and the government is likely to want to normalise spending quickly.
 MAS adopted a zero gradient for the SGD policy band at the April policy meeting. This could be in place for as long as
two years. SGD interest rates and bond yields to fall as they catch up with global forces.
Growth
Effective Covid response, but Singapore has handled Covid well. Its epidemic curve flattened out second only to
growth will contract because of China. But, the virus has subsequently reaccelerated. Singapore is a small open
Singapore’s exposure to trade,
tourism and the oil market
economy that is almost impossible to isolate from the rest of the world. This informs
its economic forecast also; GDP growth is 83% correlated with world trade.
2020 GDP: -2.5% YoY When Covid was considered a China-centric economic shock, the Singapore
government announced a fiscal boost of 1¾% of GDP. This was dwarfed by the
Resilience budget, announced 26 March, which raised the government’s Covid
response to 11% of GDP. But, at the same time the government forecast was cut
to -4% to -1% and the flash 1Q GDP growth estimate showed a 10.6% QoQ saar
2021 GDP: +5% YoY contraction. The government is right in its bleak outlook. Tourism will stay under
pressure all year. Entrepot earnings will be under pressure both this year and next
as world demand falls. The oil price crash will also hit Singapore disproportionately.
All the above suggests that 2020 growth be negative, we forecast -2½%. However,
the weakness of the 1Q20 base, plus effective government policy should see a good
rebound in 2021 even though key export sectors will still be struggling.
Inflation
Negative MAS core inflation in MAS core inflation was -0.1% YoY in February after falling steadily through 2019.
February We see no acceleration given the growth and oil price environment.

2020 has seen an aggressive The additional fiscal stimulus will swing the government deficit from 2019’s surplus
fiscal stimulus of 0.3% of GDP to a deficit of 7.9%. We do not expect further fiscal stimulus; the
March package was huge and, over the cycle, Singapore is fiscally conservative.
Government will want to Fiscal restraint will become a focus as 2021 progresses and we see the 2021 deficit
normalise the fiscal position as falling from the unheralded 2020 level to between 3-4% of GDP. The government
soon as possible is likely to try and get back to a surplus by 2022 or 2023.
SGD NEER policy band flat MAS loosened monetary policy on 30 March. It reduced the centre of the SGD
from April NEER policy band and flattened the band to a zero gradient. This is a comparable
monetary policy to the 2008 and 2001 recessions. A negative gradient has never
been adopted, however MAS has periodically recentred the band and this is
possible at either the October 2020 or April 2021 policy meetings as growth data
disappoint.
Lending rates and bond yields Through the GFC SGD lending rates came down with a lag. A repeat should be
to fall expected. The yield on 10-year SGD government bonds is already approaching
record lows and will fall below 1% on our forecast.
Despite the monster fiscal CLSA vs The Street

boost the government expects GDP Inflation 3 month SIBOR SGD/USD
growth this year to be
Government (2020) -4 to -1 (2020) 0.9 n.a n.a.
negative, we agree
CLSA (2020) -2.5 (2020) -0.1 (end-20) 0.75 (end-20) 1.40

Singapore EoAE Forecasts - 2Q20
Singapore by numbers
2014 2015 2016 2017 2018 2019 2020F 2021F
GFCF 4.2 2.0 1.5 4.2 (3.4) (0.2) (11.4) 3.5
Exports, goods & services 3.6 5.0 (0.0) 6.2 8.1 (1.6) (9.9) (1.3)
Imports, good & services 2.8 3.4 0.2 7.5 7.3 (1.7) (11.5) (2.8)
Real GDP growth 3.9 3.0 3.2 4.3 3.4 0.7 (2.5) 5.0
Prices
Consumer prices (y/e) (0.1) (0.6) 0.2 0.4 0.5 0.8 (0.8) 0.3
Consumer prices (average) 1.0 (0.5) (0.5) 0.6 0.4 0.6 (0.1) 0.2
Domestic supply prices (y/e) (15.4) (11.1) 9.1 0.7 0.4 (0.9) (12.1) (5.9)
SGD/USD (y/e) 1.32 1.41 1.45 1.34 1.36 1.35 1.40 1.36
SGD/USD (average) 1.27 1.37 1.38 1.38 1.35 1.36 1.43 1.39
3-month SIBOR (% y/e) 0.46 1.19 0.97 1.50 1.89 1.77 0.75 0.75
External sector
NODX (USD, % YoY) (2.4) (6.4) (3.3) 8.9 6.7 (10.2) (27.3) (1.4)
Retained imports (USD, % YoY) (5.0) (29.8) (5.9) 22.7 17.4 (8.4) (33.4) (12.8)
FDI (USD bn) 16.1 24.5 30.9 49.0 61.3 72.2 57.6 65.7
CA + net FDI (% GDP) 23.1 26.7 27.3 30.6 33.6 36.4 37.9 41.3
Money supply
Money supply M1 (y/e) 3.6 0.1 7.7 6.4 0.5 5.9 6.8 11.2
Money supply M2 (y/e) 3.3 1.5 8.0 3.2 3.9 5.0 5.2 6.1
Bank credit (y/e) 5.7 (1.2) 2.9 5.6 3.0 3.1 (1.7) 6.1
Bank credit (% GDP) 152.2 141.6 140.2 138.1 133.4 136.4 141.0 140.0
Government sector
Government balance¹ (% GDP) 0.1 (1.0) 1.4 2.3 0.7 (0.3) (7.9) (3.7)
Nominal GDP
Nominal GDP (SGD bn) 398.9 423.4 440.2 472.1 503.4 507.6 482.9 516.0
Nominal GDP (SGD, % YoY) 3.7 6.1 4.0 7.2 6.6 0.8 (4.9) 6.8
Other data
Industrial production 2.7 (5.1) 3.7 10.4 7.0 (1.4) (16.6) 3.0
Retail sales 3.0 3.3 3.8 1.7 (0.2) (2.6) (7.9) 3.8
Unemployment (% y/e) 1.9 1.9 2.2 2.1 2.2 2.3 3.7 3.5
Note: % YoY rates unless otherwise stated. ¹ Fiscal years beginning 1 April. Source: CEIC, MAS, MTI, Bloomberg, CLSA estimates
Currency forecast
2017 2018 2019 2020F 2021F 2Q20F 3Q20F 4Q20F 1Q21F
SGD/USD 1.34 1.36 1.35 1.40 1.36 1.50 1.40 1.40 1.40
SGD/JPY 100 1.19 1.24 1.24 1.27 1.30 1.50 1.27 1.27 1.33
SGD/GBP 1.81 1.73 1.78 1.82 1.77 1.65 1.78 1.82 1.75
SGD/EUR 1.60 1.56 1.51 1.61 1.56 1.50 1.61 1.61 1.54

Taiwan EoAE Forecasts - 2Q20
Dragged down by other countries’ lockdowns

 Taiwan avoided a sharp Covid-crash in Jan-Feb though March data are likely weaker. However it will not be able to
avoid the crash in world trade we expect as outside of Asia the world enters lockdown.
 Weak Taiwanese exports feed into weak household consumption and private investment. Fiscal stimulus is relatively
modest. We see a 1½% GDP contraction this year. Next year’s growth rises, but only to 2% as exports remain soft.
 The mega fiscal responses to try and offset the effects of lockdown haven’t been needed and policy is typically less
aggressive in the face of “normal” external demand shocks. Rates will be cut further, but not to the zero bound.
Growth
Covid has reversed an Data were accelerating in the closing months of 2019. This will reverse because of
improving end-2019 trend Covid and Taiwan’s historical correlation with world trade (84%) warns that both
2020 and 2021 will see export-related activity weak. However, some structural
The virus has been contained positives that were emerging in 2019 still exist, Taiwan was one of the biggest
successfully beneficiaries from supply chains diversifying out of the China; this will continue.
Taiwan was successful in containing Covid without crashing economic growth. As a
But Taiwan is export driven
result its fiscal response is so far small (~½% of GDP). However, although its Jan-
and vulnerable to the external Feb trade and IP data were good, it is only a matter of time before the collapse in
demand shock world trade we forecast (see pp15-17) hits Taiwanese exports. We forecast a 15%
nominal and 11% real fall in exports (goods & services) in 2020. Trade slowdowns
We forecast -1.5% GDP growth
this year
hit private consumption and investment in Taiwan meaning that the central bank’s
forecast (cut to 1.9% in March) looks much too optimistic. 2021 sees a return to
positive growth. We forecast 2021 growth at 2%. The absence of a 1Q-2Q20
“crater” means that base effects are weaker and also that this is a truer reflection
Modest recovery to 2% YoY
growth in 2021
of Taiwan’s economy next year than is the case in some other countries. This is a
lacklustre upturn but is best that can be expected in a world trade environment that
will be weak even after Covid headwinds have cleared.
Inflation
Core inflation around 0.5%, Went negative in February and though this is a Chinese New Year effect underlying
headline inflation lower inflationary pressures are minimal. Core inflation will be around the 0.5% 2019
average in 2020. Headline inflation lower. Inflation will be a non-issue in 2021 also.

Two more 25bp rate cuts from The central bank cut the discount rate by 25bp to 1.125% in March. Additionally
CBC CBC provided TWD200bn (1.1% of GDP) to expedite credit to SMEs. Historically
when CBC moves it is in response to a clear economic risk. This means that the
March cut will not be the last. We expect a further 25bp cut in June. More easing
will be required in 2H20. Certainly, September 2020 is a live meeting; we anticipate
a last 25bp reduction. After this, rates can stay on hold. CBC is a conservative
central bank but it waited to mid-2010 to start to tighten after the GFC. The 2021
growth trajectory we are forecasting is much flatter (TW grew 10.2% in 2010 on a
bounce in world trade!) so no rate increases to end-2021 is our central case.
TWD to rebound in 2H20 but CBC has been historically sensitive to the exchange rate and has indicated that it
only modestly will step in to control capital flows if necessary. We expect that the TWD will
continue to weaken as global growth data collapse in the coming quarter. As with
KRW the second half recovery we see for the TWD is blunted by the realisation
that the recovery in world trade in 2H20 will be incomplete.
CBC forecast is recent and still CLSA vs The Street

looks much too high GDP Inflation Policy rate TWD/USD
Central bank (2020) 1.9 (2020) 0.6 n.a n.a.
Consensus end-2020 rate
forecast already overtaken by Consensus (2020) 1.8 (2020) 0.9 (end-20) 1.20 (end-20) 30.0
events CLSA (2020) -1.5 (2020) 0.3 (end-20) 0.63 (end-20) 30.5

Taiwan EoAE Forecasts - 2Q20
Taiwan by numbers
2014 2015 2016 2017 2018 2019 2020F 2021F
Public consumption 3.8 (0.1) 3.7 (0.4) 4.0 0.1 4.9 4.4
GFCF 3.5 2.7 3.4 (0.3) 3.0 9.1 (9.4) 5.9
Exports, goods & services 6.1 0.4 (0.9) 4.5 0.7 1.2 (10.6) 0.2
Imports, goods & services 5.7 1.4 (1.0) 1.6 1.4 0.8 (12.7) 1.8
Real GDP growth 4.7 1.5 2.2 3.3 2.7 2.7 (1.5) 2.0
Prices
Consumer prices (y/e) 0.6 0.1 1.7 1.2 (0.1) 1.1 0.4 1.2
Consumer prices (average) 1.2 (0.3) 1.4 0.6 1.3 0.6 0.3 1.0
Wholesale prices (y/e) (4.8) (7.3) 1.8 0.3 0.8 (3.5) (4.5) 0.5
TWD/USD (y/e) 31.35 32.79 32.00 29.95 30.59 29.99 30.50 30.00
TWD/USD (average) 30.31 31.75 32.24 30.41 29.84 30.91 30.69 30.00
Discount rate (% y/e) 1.875 1.625 1.375 1.375 1.375 1.375 0.625 0.625
Overnight rate (% y/e) 0.39 0.24 0.17 0.18 0.18 0.18 0.05 0.05
External sector
Exports (USD, % YoY) (0.6) (11.1) (9.0) 10.8 0.8 (4.2) (14.6) 0.4
Imports (USD, % YoY) (2.5) (17.2) (10.6) 9.7 6.5 (1.9) (13.9) 1.0
FDI (USD bn) 15.5 17.1 27.2 14.8 25.1 20.1 12.2 18.1
CA + net FDI (% GDP) 14.2 16.7 18.1 16.6 15.6 13.8 11.3 10.8
Money supply
Money supply M1b (y/e) 6.9 6.4 6.0 4.0 5.7 7.4 6.1 6.6
Money supply M2 (y/e) 5.8 5.7 4.1 3.6 3.1 4.1 4.4 4.6
Private sector credit (% of GDP) 125.4 123.8 125.5 128.6 133.1 136.0 133.6 137.9
Government sector
General gov’t balance (% GDP)¹ (2.7) (1.8) (2.2) (2.0) (1.9) (1.9) (2.8) (2.4)
Nominal GDP
Nominal GDP (TWD bn) 16,258 17,055 17,555 17,983 18,343 18,899 18,518 18,913
Nominal GDP (TWD, % YoY) 6.5 4.9 2.9 2.4 2.0 3.0 (2.0) 2.1
Other data
Industrial production 7.5 (1.4) 3.6 5.7 1.6 (1.2) (11.1) 3.5
Retail sales 2.6 (0.0) (1.0) 0.3 1.1 1.8 (4.9) 1.4
Unemployment (% y/e) 3.8 3.9 3.8 3.7 3.7 3.7 5.1 5.2
Note: % YoY rates unless otherwise stated. Source: CEIC, CLSA estimates, IMF, Central Bank of China, DGBAS
Currency forecast
2017 2018 2019 2020F 2021F 2Q20F 3Q20F 4Q20F 1Q21F
TWD/USD 29.95 30.59 29.99 30.50 30.00 31.50 30.50 30.50 30.00
TWD/JPY 100 26.57 27.89 27.61 27.73 28.57 31.50 27.73 27.73 28.57
TWD/GBP 40.47 39.01 39.76 39.65 39.00 34.65 38.74 39.65 37.50
TWD/EUR 35.95 35.08 33.63 35.08 34.50 31.50 35.08 35.08 33.00

Thailand EoAE Forecasts - 2Q20
Economy succumbs to Covid

 Thailand’s economy was weak going into the Covid epidemic thereby increasing its vulnerability. Exports and tourism,
the key growth drivers, have been hit. With the economy currently in lockdown, GDP will contract by 5% this year.
 Suppressed global demand and weak global trade will keep exports under pressure. A tourism rebound is unlikely as
Covid fears will curb China outbound tourism. This will limit the GDP rebound in 2021 to our forecast 0.8%.
 Covid support measures and reduced tax revenues will widen the fiscal deficit leaving limited financing capacity for a
ramp up in infrastructure spending. Interest rates are already low, another 50bp cut will lower the policy rate to 0.25%.
Growth
GDP contraction in 2020 as Thailand is among Asia’s most vulnerable economies in the face of the Covid-19
Covid hits the major growth epidemic. Firstly, the economy was weak going into the crisis because of a failure
drivers: exports and tourism
to ramp up infrastructure spending as an offset to the export manufacturing
downturn. Secondly, the global spread of the epidemic has hit Thailand’s two major
growth drivers: exports and tourism. Thirdly, the local outbreak has forced a
lockdown and consequent halt to consumption and production with the biggest
impact expected in 2Q19. A rebound in 2H20 will still leave real GDP growth, in
our forecast, contracting by 5% in 2020.
Export and tourism rebound is Successive waves of Covid outbreaks will suppress global demand keeping global
not expected, infrastructure trade conditions weak. A renewed decline in exports will lead to GDP contraction
ramp-up is doubtful in 2021
in 1Q21; sluggish export growth will limit the GDP rebound in subsequent quarters.
Tourism prospects are also bleak. Chinese outbound tourism is unlikely to pick up
convincingly until a coronavirus vaccine is found to halt further outbreaks.
Infrastructure spending will be limited by the increasing fiscal constraint from Covid
support, including the state of emergency decree measures (24 March), which will
widen the 2020 fiscal deficit above 6% of GDP. That said, after the steep GDP
contraction in 2020, a base year effect will lift growth to our 0.8% forecast in 2021.
Inflation
Covid is deflationary with Inflation has been long subdued in Thailand. Average headline inflation was at 0.7%
weakening domestic demand YoY in 2019, below BOT’s 1-4% target. Core inflation has been contained at 0.5-
reinforced by falling fuel prices
0.7% for the last four years, a reflection of weak domestic demand. Low inflation
will persist. Covid will be deflationary with a further weakening of domestic demand
reinforced by declining fuel prices. The BOT now forecasts negative inflation in
2020; its average inflation target is -1.0% with a modest rebound to 0.3% in 2021.
We forecast -0.5% average inflation in 2020, edging up to 0.2% in 2021.

50bp rate cut delivered, Covid has triggered a 50bp policy rate cut to 0.75% so far this year. Interest rates
another 50bp expected, are already low but we expect that the BOT, in response to the steepening
keeping rates low in real terms
economic downturn in 2Q20, will cut rates by a further 50bp to 0.25% by mid-year.
On our inflation projection, this will keep the policy rate low in real terms in 2H20
making BOT disinclined to cut rates to zero. BOT liquidity enhancement by
government bond purchase has broadened to mutual fund and corporate support.
Recession will sustain THB THB losses will persist in 2Q20 but then stabilise as international USD liquidity
pressure but current account improves. Economic weakness will sustain exchange rate pressure in 2021 but the
surplus will provide support
current account surplus, albeit narrowing, will cap THB/USD depreciation at 1%.
Dramatic downward revision to CLSA vs The Street

GDP growth by BOT on 25 GDP Inflation Policy rate THB/USD
March was a stark indication of
Government (2020) -5.3 (2020) -1.0 n.a n.a.
the severity of the crisis
CLSA (2020) -5.0 (2020) -0.5 (end-20) 0.25 (end-20) 33.50

Thailand EoAE Forecasts - 2Q20
Thailand by numbers
2014 2015 2016 2017 2018 2019 2020F 2021F
GFCF (2.2) 4.4 2.9 1.8 3.8 2.2 (9.5) 1.4
Domestic demand (contr. to growth) (2.5) 2.3 0.1 4.8 6.8 1.5 (3.5) 2.4
Exports, goods & services 0.3 1.3 2.7 5.2 3.3 (2.6) (9.5) (1.1)
Imports, goods & services (5.3) 0.0 (1.0) 6.2 8.3 (4.4) (8.2) 1.3
Real GDP growth 1.0 3.1 3.4 4.1 4.2 2.4 (5.0) 0.8
Prices
Consumer prices (y/e) 0.6 (0.9) 1.1 0.8 0.4 0.9 (0.8) 0.8
Consumer prices (average) 1.9 (0.9) 0.2 0.7 1.1 0.7 (0.5) 0.2
Producer prices (y/e) (3.6) (2.7) 1.1 (0.6) (0.5) (0.3) (2.4) 1.1
THB/USD (y/e) 32.90 36.01 35.81 32.67 32.71 30.22 33.50 33.80
THB/USD (average) 32.47 34.24 35.28 33.92 32.30 31.04 33.00 33.75
1-day repo rate (% y/e) 2.00 1.50 1.50 1.50 1.75 1.25 0.25 0.25
Minimum lending rate (% y/e) 6.94 6.68 6.43 6.32 6.32 6.18 5.25 5.25
External sector
Exports (USD, % YoY) (0.4) (5.9) 0.1 9.5 7.5 (3.2) (11.6) (1.6)
Imports (USD, % YoY) (7.9) (10.6) (5.1) 13.2 13.7 (5.4) (11.4) 0.3
FDI (USD bn) (0.8) 3.9 (10.6) (10.3) (8.0) (7.1) (5.5) (2.5)
CA + net FDI (% GDP) 2.7 7.9 7.9 7.4 4.0 5.5 3.7 3.6
Money supply
Money supply - Narrow (y/e) 1.3 5.7 4.8 9.4 2.8 5.7 1.2 2.7
Money supply - Broad (y/e) 4.6 4.4 4.2 5.0 4.7 3.6 1.1 2.8
Government sector
Public sector balance (% GDP)¹ (1.0) (1.8) (0.9) (2.5) (2.0) (2.3) (6.6) (5.7)
Public sector debt (% GDP, y/e) 43.3 42.6 41.8 41.9 42.1 43.0 51.9 57.1
Nominal GDP
Nominal GDP (THB bn) 13,230 13,743 14,593 15,487 16,366 16,879 16,011 16,185
Nominal GDP (THB, % YoY) 2.4 3.9 6.2 6.1 5.7 3.1 (5.1) 1.1
Other data
Industrial production 0.1 1.9 2.2 2.1 2.7 (0.0) (7.6) (0.7)
Note: % YoY rates unless otherwise stated; ¹ Fiscal year ending September. Source: IMF, IFS, CEIC, CLSA estimates, Bank of Thailand
Currency forecast
2017 2018 2019 2020F 2021F 2Q20F 3Q20F 4Q20F 1Q21F
THB/USD 32.67 32.71 30.22 33.50 33.80 33.75 33.55 33.50 33.75
THB/JPY 100 28.99 29.82 27.82 30.45 32.19 33.75 30.50 30.45 32.14
THB/GBP 44.15 41.72 40.06 43.55 43.94 37.13 42.61 43.55 42.19
THB/EUR 39.22 37.51 33.89 38.53 38.87 33.75 38.58 38.53 37.13

Important disclosures Eye on Asian Economies 2Q20
Analyst certification
The analyst(s) of this report hereby certify that the views expressed in this research report accurately reflect my/our
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EYE ON ASIAN ECONOMIES

The Great Covid Recession

Covid is deflationary, collapsing commodity prices and the pricing power

Real GDP growth

Australia 2.7 1.8 (3.1) 1.7

Eric Fishwick Contents

Your eyes on the Asian economies

2 eric.fishwick@clsa.com 31 March 2020

2020 growth forecasts CLSA real GDP growth forecasts

Australia 2.5 2.7 1.8 (3.1) 1.7

31 March 2020 eric.fishwick@clsa.com 3

The Great Covid Recession

Markit China PMIs China monthly activity indicators (monthly %YoY)

Source: CLSA, Markit Economics Ltd Source: CLSA, CEIC

Covid assumptions: Multi-stage not single peak

4 eric.fishwick@clsa.com 31 March 2020

 And the restrictions are being relaxed in a monitored stepwise manner.

 Fisman’s expectation is that countries that have successfully contained the

 Because successful control works, it leaves many humans susceptible to

First Covid wave 2Q20, second Covid wave 1Q21

31 March 2020 eric.fishwick@clsa.com 5

Mapping Covid-19 to growth: US and Europe

Source: CLSA, Federal Reserve Bank of Atlanta Source: CLSA, Now-casting.com

6 eric.fishwick@clsa.com 31 March 2020

Markit economics PMIs: United States Markit economics PMIs: Eurozone

31 March 2020 eric.fishwick@clsa.com 7

10% (%QoQ saar) 4% (%QoQ sa)

Source: CLSA, CEIC Source: CLSA, CEIC

A second-half 2020 rebound

To prevent businesses  Guaranteeing/backstopping or offering alternative credit lines for small

8 eric.fishwick@clsa.com 31 March 2020

Developed economy monetary initiatives (as at 29 March)

31 March 2020 eric.fishwick@clsa.com 9

The second wave

10 eric.fishwick@clsa.com 31 March 2020

corporate sector through exceptional transfer payments from government looks a

US GDP growth forecast Eurozone GDP growth forecast

Fiscal and monetary risks

31 March 2020 eric.fishwick@clsa.com 11

Mapping Covid-19 to growth: Commodity prices & EM demand

US exploration rig count Oil prices (USD/bbl)

Source: CLSA, Bloomberg Source: CLSA, Bloomberg

12 eric.fishwick@clsa.com 31 March 2020

Source: CLSA, cpb.nl, Bloomberg

Commodity price forecasts

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Source: CLSA, Bloomberg Source: CLSA, Bloomberg, cpb.nl

20% 5% 10% 20%

-60% -10% -15% -60%

Source: CLSA, Bloomberg, cpb.nl Source: CLSA, Bloomberg, cpb.nl

14 eric.fishwick@clsa.com 31 March 2020

Mapping Covid-19 to growth: A hard slowdown in world trade

Source: CLSA, cpb.nl Source: CLSA, cpb.nl

Asian growth was somewhat better (Figure 21) as:

 China’s contribution to world trade volume growth had started to accelerate.

China trade (USD %YoY) China daily thermal coal use

31 March 2020 eric.fishwick@clsa.com 15

 Demand from commodity exporters will remain weak.

 Demand from the Eurozone will be weak as Europe is export driven.

These factors will limit the extent of any recovery to end-2020.

16 eric.fishwick@clsa.com 31 March 2020

90 Actual F/cast -5%

Source: CLSA, cpb.nl Source: CLSA, cpb.nl