The Bank of Korea Says "Emerging Markets Likely to Experience Significant Economic Contraction Due to COVID-19"

[Asia Economy Reporter Kim Eunbyeol] Recently, confirmed cases of the novel coronavirus infection (COVID-19) have been rapidly increasing in major emerging countries in India, Russia, ASEAN, and South America, and mandatory quarantine measures are being implemented one after another, raising expectations that the scale of economic contraction in emerging countries will be significant.

On the 19th, the Bank of Korea stated in its 'Overseas Economic Focus' report, "Mandatory quarantine measures are being implemented in emerging countries as well, and as a result, contrary to the initial expectation that emerging economies would lead growth this year, they are expected to face difficulties." It added, "Emerging economies are expected to see a sharp contraction in private consumption and production due to the implementation of mandatory quarantine measures in March and April, and the growth rate for this year is also expected to decline significantly."

Due to sluggish overseas demand caused by mandatory quarantine measures in advanced countries and the intensification of domestic quarantine measures, economic activities centered on wholesale and retail, food and accommodation, and transportation could sharply decrease. In particular, the Bank of Korea noted, "Considering that the medical and healthcare environment in emerging countries is poor, the end of COVID-19 may be delayed compared to advanced countries, so the scale of economic contraction in emerging countries is likely to be larger than expected, and the timing of economic activity normalization may also be delayed."

Recently, India, Russia, Argentina, Thailand, Malaysia, and Vietnam have implemented nationwide quarantine measures. India has enforced strong measures such as restrictions on going out, suspension of public transportation, and factory shutdowns. The Bank of Korea reported, "Due to the sudden announcement, local workers who lost their jobs have returned to their hometowns, raising concerns about further spread." In Russia, a one-week paid leave was initially implemented, but as confirmed cases increased, the paid leave was extended until the end of April and converted into mandatory quarantine measures. Brazil and the Philippines are implementing quarantine measures regionally, and Indonesia is also considering activating quarantine measures after declaring a state of emergency.

The economic impact of COVID-19 is also becoming apparent in South Africa and Peru.

Moody's maintained a 'negative' outlook on South Africa's economic prospects and downgraded its credit rating from Baa3 to Ba1. As a result, all three major global credit rating agencies have rated South Africa's credit rating at junk level. South Africa recorded growth rates in the 4% range and fiscal surpluses in the early 2000s, but after the global financial crisis, despite increased fiscal spending, growth rates fell to the 1% range due to declines in private investment and productivity, and government debt recently rose to 60% of GDP.

The Bank of Korea stated, "As the possibility of South African government bonds being excluded from the WGBI increases, sales of South African government bonds by funds benchmarking the WGBI are expected to expand, and the value of the South African rand is also likely to decline further."

Peru is likely to experience negative growth for the first time in 22 years due to the spread of COVID-19, a decline in production in the major mining industry, and a drop in international commodity prices. After the spread of COVID-19 in China, demand decreased, causing commodity prices to fall, and within Peru, confirmed cases surged, leading to the suspension of production by mining companies and the beginning of economic slowdown. Major global investment banks (IBs) forecast that Peru will record negative growth (-2.5% to -2.0%) for the first time since 1998.

This content was produced with the assistance of AI translation services.