East Asian high growth economies could supplement crisis-stricken Danish export markets

Despite COVID-19 fallout, the East Asian high growth economies may rebound faster from the crisis than many other countries.

By: Peter Toft, Chief Analyst, EKF

East Asia is a diverse region spanning from the high income countries of Japan, Australia and South Korea to some of the world's poorest developing economies like Myanmar and Laos. Countries in this region, however, had the advantage on the coronavirus of national preparedness following previous pandemics such as SARS, which also broke out in their neighbourhood. South Korea and China, for example, were relatively quick to flatten the COVID-19 curve, while Taiwan and Vietnam took firm action to contain the contagion.

Taiwan's significance for Danish export is increasing.

This has served to put East Asia a step ahead in reopening. Several countries have monetary and fiscal manoeuvrability, which could hold promise for Danish exports, given that Denmark's traditional export markets appear to have taken a tumble.

China coming back on track

Following sharp deceleration in the first quarter, China, the region's major growth engine and Denmark's sixth-largest export market, now appears to be revving up past the pandemic. China started easing its restrictions in April and is currently seeking to contain new outbreaks. Consumption and the investment rate are resurging.

Last weekend, the National People's Congress adopted a new budget with fiscal relief measures to aid the economy, and China is forecasted to achieve growth of up to one percent in 2020. Not impressive compared with the usual five to six percent, but better than the minus five to ten percent projected for Europe and North America. Government kick-start investments in more high-speed rail lines, energy-efficiency measures, clean energy and 5G IT infrastructure are likely contenders in China's post-pandemic growth strategy.

Vietnam poised for post-pandemic success

Despite years of high growth, so far, Vietnam has not been a major Danish export market owing to low domestic demand and its focus on brown rather than green growth.

However, now that Vietnam has embarked on its transition to a green economy, it has high demand for new energy capacity, buildings and infrastructure. With increasing prosperity, household private consumption is also on the rise.

Vietnam had few coronavirus deaths, and did not shut down its industry at any stage. Growth for 2020 has been adjusted down to two to three percent from around seven percent, but the country seems set to avoid recession. In the short term, the challenge facing Vietnam is how hard and how long the economy suffers from setbacks in its main export markets in Europe and the USA.

Vietnam has some scope for economic stimulus, but sovereign debt is at the high end of the scale. Against that, Vietnam is well placed to attract fresh foreign investment as a preferred low-cost destination for relocating manufacturing from China, not least in the light of the disputes between the US and China. The country's firm handling of the pandemic could increase its attractiveness as a manufacturing location.

Taiwan cushioned against economic crisis

Highly developed Taiwan has also dealt effectively with COVID-19 and seems set to skirt deep recession in 2020, not least by virtue of its robust fiscal policy that will allow it to jump-start the economy.

Recently re-elected President Tsai's plans include attracting outsourced manufacturing back to Taiwan post-crisis and amassing national value chains in strategic sectors such as pharma and energy. With 23 million affluent consumers and a clean-energy transition now in progress, Taiwan's significance for Danish exports could increase.