South Korea started the year seeing green shoots amid reduced U.S.-China trade tensions.  However, with the virus spreading fast inside South Korean borders, the shock to domestic consumption (accounting for 50% of gross domestic product) will be significant. The South Korean markets and currency have suffered, while manufacturers’ confidence has plunged the most in five years.

Recent disruptions suggest the recovery will be slow, particularly for Japan. In 2011, after the Tōhoku earthquake, Japan’s industrial output fell 13% but recovered only after several months. Those hoping for a smooth, V-shaped recovery will likely be left disappointed. Plus, the future of the 2020 Tokyo Olympics is in doubt. The games could face a fate similar to that of the 1940 Tokyo Winter Olympics, which were reawarded to Europe because of Japan’s war with China, before being cancelled altogether due to World War 2. 

The fallout is only just beginning, and Asia’s major economies are already feeling the impact of the outbreak. The continued spread of COVID-19 will lead to isolation of more and more markets. Quarantining a virus-infected person will help contain its spread; quarantining an entire market, however, will only add to economic pain.

Carl R. Tannenbaum is executive vice president and chief economist at Northern Trust. Ryan James Boyle is a vice president and senior economist within the Global Risk Management division of Northern Trust. Vaibhav Tandon is an associate economist within the Global Risk Management division of Northern Trust.

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