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Coronavirus Strikes Tourism, Factories, Consumption around Southeast Asia

Traders wearing face masks are seen on the trading floor at a flower auction trading center following an outbreak of the novel coronavirus in the country, in Kunming, Yunnan province, China, Feb. 10, 2020.

In Southeast Asia, a region known for low-cost factory work and strong consumer spending, countries from Myanmar to the Philippines had forecast 2020 economic growth at more than 6%. Now, just six weeks into the year, no one’s so sure.

The deadly coronavirus outbreak in China has dried up tourism in Malaysia, Singapore and Thailand as those countries restrict entries to control the spread of the virus. Airlines followed with 25,000 flight cancellations worldwide. Export manufacturers in Southeast Asia’s factory hub Vietnam cannot always get raw materials from China this month because the outbreak caused work stoppages.

And masses of virus-fearing people around the 630 million-person subcontinent are staying indoors instead of going out to shop.

Outside China, “the most immediate economic implications will manifest through a fall in tourist arrivals from, and weaker exports of goods to China, and transmission to and through economies integrated into the Chinese supply chain,” Moody’s Investors Service said in a note Tuesday on coronavirus impacts.

The novel coronavirus respiratory disease was discovered in December in the Chinese city, Wuhan. So far, it has sickened 43,143 people and killed 1,018, mostly in China. China closed of its hardest-hit cities and extended the Lunar New Year break by a week to keep the disease out of schools and workplaces. Most workers returned to their posts Monday.

Southeast Asia, because of its close economic and trade links to China, will be especially impacted, economists believe.

Tourists stay home

Tourism to Southeast Asia from China that usually peaks during the Lunar New Year season had fallen off by February 1 as groups canceled tours due to entry restrictions imposed by destination countries.

Near Kota Kinabalu, a Malaysian city popular with Chinese beach-loving tourists, hotels were emptying out by January 31. In neighboring Brunei, immigration officers grilled Chinese tourists on whether they had visited Wuhan before arriving. Singapore banned arrivals from China on January 31.

Southeast Asians feel “fear” and “panic,” said Rajiv Biswas, Asia-Pacific chief economist at market research firm IHS Markit.

“If we only look at the tourism shock, it’s already quite a big negative shock for at least the first quarter of this year,” Biswas said. “Beyond that, it really depends how long this epidemic continues, but from the way it is right now it seems unlikely that it will suddenly just disappear.”

Singapore received 18% of its total inbound tourists from China in 2018. Chinese tourists made up 20% of international tourism for the Philippines last year and 11% of inbound travel to Malaysia.

Southeast Asians have hurt their own service industries by staying home to avoid catching diseases. They’re shunning shops, restaurants and public events, instead stocking up on non-perishables in case of a long stay indoors.

Manufacturing supply chain

Manufacturing in countries such as Vietnam and Cambodia will take a hit because factories cannot be sure of getting raw materials from China. China supplies steel and parts for electronics, to name two examples. Foreign investors have opened factories in Southeast Asia over the past decade to avoid higher operating costs in China, a boost to 2020 economic growth forecast at 6.8% in Cambodia and Myanmar along with 6.7% in Vietnam.

But some factories closed this month in Vietnam for lack of raw materials, said Adam McCarty, chief economist with Mekong Economics in Hanoi.

“In the short term of course it’s going to have a big impact on the ability to supply orders,” McCarty said.

Car manufacturers such as Toyota, Hyundai and Ford have delayed reopening factories in multiple countries after the Lunar New Year holiday that would have normally wound down last week, the S. Rajaratnam School of International Studies at Nanyang Technological University in Singapore said in a January 31 study.

Apple has warned too about the “impact of the virus on its production while it reconsiders plans for its supply chain,” the study says.

“In the long run, it’s going to make people reconsider their China risk considerations because China can shut down,” McCarty said. “It’s another variable in the reason to diversify your sources of inputs.”

Impacts up to six months

The impact of the virus on Southeast Asian economies will last three to six months, analysts believe. The speed of recovery will hinge on government support for struggling industries and China’s ability to control the outbreak.

“Of course, the first quarter and into the second quarter there will be a definite impact, but after that it depends how long this thing lasts and whether there are companies that can withstand it,” said Liang Kuo-yuan, president of the Polaris Research Institute research organization in Taipei.

“If you’re the big guys then no problem. Yet if you’re the small and medium sized firms, you can’t hold out and then you face the issue of bankruptcy,” Liang said.

There’s the odd glimmer of hope already.

Vietnam’s monetary authority is asking banks to keep lending rates low to stimulate the economy. And in technology, the supply chain for computer servers was recovering “better than expected” after Chinese people went back to work Monday, market research firm TrendForce said.