The impact of Covid-19 on the financial system

THE Covid-19 pandemic is an unprecedented stress event that has wreaked havoc on businesses and household balance sheets worldwide. According to the IMF's World Economic Outlook (June 2020), global growth is expected to contract by 4.9 per cent in 2020. Of even greater concern is that there may be long-lasting economic damage to the global economy in terms of business investment, supply chains, labour force participation and human capital formation (so-called "economic scarring"). The pandemic has also impacted financial systems in Asia and beyond in both positive and negative ways.

THE GOOD: DIGITAL TRANSFORMATION IN FINANCIAL SERVICES

The containment and lockdown measures globally in response to Covid-19 has given a big impetus to e-payments and digital banking and financial services (lending, remittances, insurance, trade finance, etc) combined with new technologies such as AI, Blockchain and cloud computing. Digital functionality has been vital in ensuring that the financial system has remained resilient and that financial services have operated fairly smoothly in many countries. For instance, in Singapore with financial services having grown 5.9 per cent year-on-year in the first half of 2020, the sector has been one of the few bright spots in an otherwise gloomy economy which contracted 6.7 per cent in the same period.