Quick action by Asian policymakers to provide both fiscal and monetary support to their economies helped to prevent an even larger contraction in activity.
In addition, the unprecedented stimulus unleashed by the US Federal Reserve by cutting the fed funds rate to the zero lower bound, as well as providing unlimited quantitative easing, and ensuring sufficient liquidity for emerging markets, played a huge role in stabilising financial markets in the region. This is why we are not facing a financial crisis.
The size of the sequential contraction in second-quarter GDP was broadly in line with decreased mobility. India’s drop in GDP compared to the decline in mobility is an outlier, but this likely reflects India’s lower smartphone penetration compared to the rest of Asia.
There are signs that the worst of the economic contraction is now behind us. Strict restrictions have been eased, allowing businesses to re-open. Mobility trends have shown an improvement since late April or early May, which was the low point for activity.
This increase in mobility, even for economies that continue to see high new COVID-19 cases, should pave the way for positive sequential growth in the third quarter.