We analyze external adjustments in EM Asia following the COVID-19 shock. Cross-border flows are shifting considerably in many countries in the region. The global recession weighs on exports and weak domestic demand on imports. Other sources of FX inflows have come under significant pressure as well in H1. This includes both international tourism revenues and workers’ remittances.
We downgrade our forecast and now expect an output contraction of 3.2%. The collapse in tourism has had the most immediate impact on the region. Shutdowns weakened domestic demand and exports declined markedly. Monetary and fiscal countermeasures will only partially offset this effect.
High import content in export production and investment is evident across the region. Recent import compression should support current account positions amid weak exports. However, the multiplier effects of import plunge on investment will likely depress GDP growth.