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Asia-Pacific Megacities: Closed for Business
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Over the past 30 years, Asia-Pacific megacities have become powerhouses of economic growth – centres of prosperity on which their respective countries often depend. As governments across the region look to contain the COVID-19 pandemic through lockdown measures of varying intensity, what will be the impact on these critical economic hubs?

Barclays Research analysts have used city-level GDP data to assess the loss of economic activity in Asia-Pacific megacities – and assess which countries face the biggest downside risks to their economies as lockdown continues.

How we’re defining a “megacity”

A city, province or region whose population and economic contribution are among the most significant in a given country and for which city-level data was available.

Urban clusters concentrate economic activity

Across the Asia-Pacific region, almost 1 billion people have moved to cities over the past three decades. This has often led to economic activity becoming highly concentrated, with obvious repercussions when natural disasters strike.

Our analysts have identified some key attributes that increase an economy’s vulnerability when a megacity is shut down through natural disaster:

Reliance on one centre: In small open economies such as Malaysia, Thailand and the Philippines, economic activity is centred around just one megacity, which makes the wider economy particularly vulnerable if that centre is shut down. In larger economies like Australia, Korea and India, activity is diversified across multiple cities.

Reliance on non-tradable sectors: In many megacities, non-tradable sectors such as administration, retail, and hospitality dominate economic activity. This means lost output from a shutdown cannot be recouped – it is a permanent loss. In a few megacities, tradables such as manufacturing account for a substantial share of the economy, which could make Gyeonggi (Korea), Penang (Malaysia) and Luzon ex Manila (Philippines), for example, more resilient.

Most megacities have large non-tradable sectors across Asia Pacific

Source: Local Statistical Bureaus, Barclays Research.

Levels of lockdown are driving divergence in growth

Most megacities across Asia Pacific are subject to some form of lockdown as governments seek to contain the spread of COVID-19. However, the severity of lockdown varies widely. We believe these disparities will play a key role in the divergence of growth across Asia Pacific in the short term.

The severity of COVID-19 lockdown differs widely across Asia Pacific

Source: Various media sources.

A critical factor in economic recovery is each country’s testing strategy and ability to capture correctly the incidence of COVID-19. South Korea, with its high testing and tracking rate, has managed to flatten the curve of new cases. Conversely, lack of a clear testing protocol has forced Malaysia, the Philippines and India to resort to complete shutdowns to mitigate the spread of the disease, exacerbating economic disruption.

In short: the potential economic cost of lockdown

How is the COVID-19 lockdown affecting economic output across Asia Pacific?

Source: Local statistical bureaus, Barclays Research.

Taking into account all of the factors above, our analysts summarise the economic impact of virus-related shutdowns on Asia Pacific’s megacities as follows:

• Shutdowns in Sydney, Kuala Lumpur and Manila are likely to lead to some of the largest regional economic losses in absolute dollar terms. Given the high economic reliance of Malaysia and the Philippines on their capital cities, shutdowns in Kuala Lumpur and Manila also present some of the biggest downside risks as a percentage of national GDP.

• Absolute losses are lower in Bangkok but could, likewise, account for close to half of weekly national GDP. Conversely, Mumbai and Delhi are likely to see large economic losses of $1.5bn or more a week – but these will each account for less than 10% of national GDP.

• In Gyeonggi, Pune and Luzon (ex-Manila), whose economies include a high level of tradable manufacturing, loss of output is likely to be at least partially recovered when economic activity levels normalise. Even so, the national GDP impact of shutdown in Gyeonggi and Luzon is still substantial.

• Having seen relatively limited activity disruption and loss of output previously, the more severe restrictions now being imposed in the single-city state of Singapore mean that proportional risks to its GDP are higher than its pre-restriction days.

Shaping the virus’s economic legacy

The state of shutdown across Asia-Pacific is changing almost daily as the coronavirus pandemic evolves. Yet our analysis suggests that levels of economic loss are likely to diverge enormously in the region’s megacities depending on the severity of shutdown, the make-up of a city’s economy and whether comprehensive virus testing is in place to enable economic activity to resume.

How countries and their megacities choose to tackle the virus now will have repercussions for their economies for months and years to come.

Read the full reports

Authorized clients of Barclays Investment Bank can log in to Barclays Live to read the full report from Barclays Research:

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About the analysts

Rahul Bajoria is Chief Economist for India and the Antipodeans, based in Mumbai. Rahul joined Barclays as part of the graduate class of 2009 in Singapore, covering economies across the Asia-Pacific region. Prior to joining Barclays, he completed his Master’s Degree in Economics at the National University of Singapore, where his primary focus was on time series econometrics and financial volatility models. Rahul has also worked at INSEAD (Singapore) and NUS Business School, looking at issues around productivity and growth, and last year, he published “The Story of the Reserve Bank of India,” an in-depth history of India’s central bank.

Angela Hsieh is a regional economist based in Singapore, covering emerging Asian economies. Angela joined Barclays in November 2014. Prior to that, she worked as a research analyst in the Fixed Income and Economics Research team at Credit Suisse based in London. In her previous role, Angela conducted macro thematic research on demographics and pensions. Angela holds a Bachelor's degree in Economics and a Master's in Finance from the London School of Economics.

Brian Tan is a regional economist based in Singapore, covering emerging Asia economies. Prior to joining Barclays in 2018, he spent four years as a Southeast Asia economist at Nomura and four years at Citibank, where he focused on the economies of Malaysia and Singapore. Brian holds a Bachelor of Social Sciences (Hons) degree from the National University of Singapore, where he read Economics.

Shreya Sodhani is a research analyst based in Singapore, covering India, the Asean countries, Australia and New Zealand. She joined Barclays in 2018 and holds a Master’s in Business Management from the Indian Institute of Management, Ahmedabad. Shreya also holds an Honors degree in Economics from St. Xavier's College, Kolkata.

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