Exporters and manufacturers in Asia may suffer a new wave of supply-chain disruption even as the lockdown eases in China.
The latest supply shock is adding to the gloomy outlook for global goods and services demand amid volatile stock, credit and currency markets.
In Singapore, where non-oil domestic exports (Nodx) have been on a declining trend since late 2017, outward-oriented sectors such as manufacturing and wholesale trade are likely to be the worst hit.
"There are emerging signs of a recovery in China's supply chains," said DBS Bank economist Irvin Seah in a phone interview on Thursday. "But data in coming months will start to reflect the impact of countrywide lockdowns and border closures (that) governments around the world have enforced and the business continuity plans companies there have put in place."
The result of these measures will be a sharp contraction in global demand, which will put a dent in near-term prospects for exports and manufacturing, he added.
Mr Seah expects the local economy to contract by 0.5 per cent this year, the first full-year recession since 2001.
To cushion the economic slide, governments are rolling out large fiscal aid packages, and central banks are cutting key interest rates and pulling out all the stops to allow the flow of capital, in order to maintain financial stability.
But the measures they are taking to quarantine the spread of the Covid-19 disease are cancelling out the effectiveness of their policy actions.
The impact of restrictive measures on trade, investment, consumption and travel is depressing consumer spending and overall demand, pushing the global economy towards a sentiment-driven or self-induced recession.
IMPACT OF MALAYSIAN MOVE
For instance, the latest and probably the most disruptive supply shock to Singapore's export and manufacturing sector comes from neighbouring Malaysia's move to restrict movement across its borders.
Hundreds of thousands of Malaysians cross the border each day to work in Singapore.
The restriction is likely to have an impact on both big and small Singapore businesses across several sectors. Biopharmaceutical manufacturing, for example, is one of those sectors that have seen the demand for their products skyrocket globally because of the pandemic.
The sector represents about a fifth of Singapore's manufacturing activity and accounts for about 4 per cent of the country's gross domestic product, and is likely to put a floor under the slide in exports.
Last week, the Singapore Association of Pharmaceutical Industries (Sapi) made a plea for governments on both sides of the border to consider all options to ensure the health and safety of their people, while taking into consideration the economic impact of each decision.
The association said that while biopharmaceutical plants in Singapore are fully operational for now, it is concerned about the impact of the movement control order, as normal operations depend on the Malaysians who cross the border every day.
"Considering that the vast majority of pharmaceutical products manufactured in Singapore are exported globally, the impact on regional and global supply chains could be exponential," Sapi said in a statement on Friday.
"Global supply could be drastically affected if biopharmaceutical manufacturing plants in Singapore are unable to continue normal operations," it added.
The Malaysian government has also enforced a large-scale lockdown of manufacturing facilities across Johor Baru - its state bordering Singapore.
A host of mostly small Singapore manufacturers for years now have been moving some of their production facilities across the border to take advantage of low costs in Malaysia and incentives by Singapore for overseas expansion.
Mr David Yong, senior executive officer at Singapore-based metal fabrication firm Allied MFG, fears that the lockdown of his plant in Malaysia will result in severe financial consequences for his company.
"First and foremost, if we are unable to deliver on orders from our customers, we take a big hit on our reputation, and second, non-delivery can result in penalties which will result in huge losses."
It took Allied MFG four years to ramp up production at its plant in Johor Baru.
The effort and costs included training dozens of Malaysians to perform the high-skilled engineering work that the company does to make specialised, made-to-order components and equipment.
Analysts are worried that if the pandemic does not abate in the coming weeks and months, it may trigger a string of defaults and bankruptcies, not just in Asia, but across the world.
The anxiety over new holes in the supply chain and an overall compression of global demand is being reflected in financial markets worldwide, making possible business failures become a self-fulfilling prophecy.
To avoid bankruptcy, emergency fiscal support in the form of bridging loans and tax rebates is seen as the most useful measure.
Yet, flows from government coffers take time. In the meantime, the panic selling in markets is hurting corporate valuations and drying up credit flows.
The sharp moves in currency markets are also exposing companies involved in foreign trade and investments to vulnerabilities by raising the cost of maintaining foreign exchange credit lines.
"Global demand has been tepid to start with anyway, so the credit deterioration and liquidity squeeze, particularly for US dollar funding, will be more impactful for exports and manufacturing," says OCBC Bank economist Selena Ling.
"As a small, open economy, the recent big swings in foreign exchange, especially Singapore dollar weakness against the US dollar, will be painful if unhedged," she notes.
The Singapore dollar recently plummeted to a three-year low versus the greenback.
In normal conditions, currency weakness boosts exports, but with supply chains broken, it is hurting more by making refinancing of debt and credit lines challenging and blowing out cross-currency hedges.
Exporters across the world are bracing themselves for the supply disruption and demand compression in major markets across the Americas and Europe - now the epicentre of the coronavirus outbreak.
In Singapore, where Nodx to China plunged by nearly 36 per cent year on year last month, some respite can be expected from the normalisation of economic activity for the Republic's top trading partner.
Overall Nodx for February, however, posted a mild spike of 3 per cent, thanks to a strong surge in shipments to the United States, European Union and Japan.
Cumulatively, the Group of Three markets contributed a total of 13.2 percentage points to Singapore's Nodx last month versus a 4.5 percentage point drag from China, according to DBS Bank's calculation.
This uplift may dissipate in coming months, however, as a ripple effect of the lockdowns and demand destruction in the US and Europe.