Developing Asia’s Economic Growth to Contract in 2020

Developing economies across Asia are set to contract this year for the first time in nearly six decades but are likely to begin to emerge from the economic devastation caused by the coronavirus next year according to a report released by the Asian Development Bank (ADB) yesterday. The report, the Asian Development Outlook (ADO) 2020 Update forecasts a GDP contraction of -0.7 percent for developing Asia this year – its first negative growth since the early 1960s.

However, the report goes on to say growth will likely rally to 6.8 percent in 2021 – in part as growth will be measured relative to a weak 2020, leaving next year’s output below pre-COVID-19 projections. With three-quarters of the regions’ economies expecting negative growth in 2020 the ADB is suggesting an “L”-shaped rather than a “V”-shaped recovery for the region.

“Most economies in the Asia and Pacific region can expect a difficult growth path for the rest of 2020. The economic threat posed by the COVID-19 pandemic remains potent, as extended first waves or recurring outbreaks could prompt further containment measures. Consistent and coordinated steps to address the pandemic, with policy priorities focusing on protecting lives and livelihoods of people who are already most vulnerable, and ensuring the safe return to work and restart of business activities, will continue to be crucial to ensure the region’s eventual recovery is inclusive and sustainable,” said ADB Chief Economist Yasuyuki Sawada.

To mitigate the ongoing risk, governments in the region have delivered wide-ranging policy measures, including support packages—mainly income support—amounting to $3.6 trillion, roughly equivalent to about 15 percent of regional GDP.However, the report points out a prolonged COVID-19 pandemic remains a major biggest downside risk to the region’s economic outlook this year and next.

According to the ADB, the PRC is one of the only regional economies bucking the trend with expected grow of 1.8 percent this year and 7.7 percent next, with successful public health measures supporting growth. In India, where lockdowns have stalled consumer and business spending, the ADB estimates GDP contracted by a record 23.9 percent in the first quarter of its fiscal year and is forecast to shrink 9 percent in FY2020 before recovering by 8 percent in FY2021.

The report goes on to highlight other potential downside risks in the region arising from geopolitical tensions, including an escalation of trade and technology disputes between the United States and the PRC; as well as financial vulnerabilities exacerbated by a prolonged pandemic.

COVID-19 to Plunge Global Economy into Worst Recession since World War II -World Bank

According to the World Bank the swift and massive global shock of Covid-19 and the measures to contain it have plunged the world economy into a severe contraction.

According to World Bank forecasts, the global economy is set to shrink by 5.2 percent this year representing the deepest recession since the Second World War, with the largest fraction of economies experiencing the largest declines in per capita output since 1870, according to their June 2020 Global Economic Prospects. Download here for depressing reading.

Economic activity between advanced economies is anticipated to shrink 7 percent in 2020 with domestic demand and supply, trade, and finance severely disrupted.

Emerging markets and developing economies (EMDEs) are expected to shrink by 2.5 percent this year, their largest collective decline for sixty years,  with per capita incomes expected to decline by 3.6 percent – tipping millions into extreme poverty.

The hardest blow is hitting countries worst affected by the pandemic and where there is heavy reliance on global trade, tourism, commodity exports, and external financing.

While the situation in each country will be different, all EMDEs have vulnerabilities that are magnified by external shocks. Moreover, interruptions in schooling and primary healthcare access are likely to have lasting impacts on human development.

“This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges. Our first order of business is to address the global health and economic emergency. Beyond that, the global community must unite to find ways to rebuild as robust a recovery as possible to prevent more people from falling into poverty and unemployment.”

said World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu. 

In a best case scenario, assuming the pandemic recedes sufficiently to allow the lifting of some mitigation measures by mid-year in advanced economies and a bit later in EMDEs; adverse global spillovers ease during the second half of the year; and that dislocations in financial markets are not long-lasting — global growth is forecast to rebound to 4.2 percent in 2021, as advanced economies grow 3.9 percent and EMDEs bounce back by 4.6 percent.

However, the outlook is massively uncertain given the inability of nations to cooperate and the downside risks are potentially huge; including the possibility of a more protracted pandemic, financial upheaval, and retreat from global trade and supply linkages.

A worst-case scenario could lead the global economy to shrink by as much as 8 percent this year, followed by a sluggish recovery in 2021 of just over 1 percent, with output in EMDEs contracting by almost 5 percent this year.

The U.S. economy is forecast to contract 6.1 percent this year, reflecting the the lack of coordinated pandemic-control measures.

Euro Area output is expected to shrink 9.1 percent in 2020 as widespread outbreaks took a heavy toll. Japan’s economy is anticipated to shrink 6.1 percent.

“The COVID-19 recession is singular in many respects and is likely to be the deepest one in advanced economies since the Second World War and the first output contraction in emerging and developing economies in at least the past six decades. The current episode has already seen by far the fastest and steepest downgrades in global growth forecasts on record. If the past is any guide, there may be further growth downgrades in store, implying that policymakers may need to be ready to employ additional measures to support activity.”

said World Bank Prospects Group Director Ayhan Kose.

Developing Asia to Grow Just 0.1% in 2020 — ADB

Viet Nam is forecast to grow 4.1% in 2020.

Developing Asia will barely grow in 2020 as containment measures to address the coronavirus disease (COVID-19) hamper economic activity and weaken external demand, according to a new set of forecasts from the Asian Development Bank (ADB).

According to the report , excluding the newly industrialized economies of Hong Kong, China; the Republic of Korea; Singapore; and Taipei,China, developing Asia is forecast to grow 0.4% this year and 6.6% in 2021.

“Economies in Asia and the Pacific will continue to feel the blow of the COVID-19 pandemic this year even as lockdowns are slowly eased and select economic activities restart in a ‘new normal’ scenario,” said ADB Chief Economist Yasuyuki Sawada. “While we see a higher growth outlook for the region in 2021, this is mainly due to weak numbers this year, and this will not be a V-shaped recovery. Governments should undertake policy measures to reduce the negative impact of COVID-19 and ensure that no further waves of outbreaks occur.”

Risks to the outlook remain on the downside. The COVID-19 pandemic may see multiple waves of outbreaks in the coming period and sovereign debt and financial crises cannot be ruled out, the report goes on. There is also the risk of renewed escalation in trade tensions between the United States and the People’s Republic of China (PRC).

East Asia is forecast to grow 1.3% in 2020—the only subregion to experience growth this year—while growth in 2021 will recover to 6.8%. Growth in the PRC is forecast at 1.8% this year and 7.4% in 2021, compared to the April estimates of 2.3% and 7.3%, respectively.

Hit hard by COVID-19, South Asia is forecast to contract by 3.0% in 2020, compared to 4.1% growth predicted in April. Growth prospects for 2021 have been revised down to 4.9% from 6.0%. India’s economy is forecast to contract by 4.0% in fiscal year (FY) 2020, ending on 31 March 2021, before growing 5.0% in FY2021.

Economic activity in Southeast Asia is expected to contract by 2.7% this year before growing by 5.2% in 2021. Contractions are forecast in key economies as containment measures affect domestic consumption and investment, including Indonesia (-1.0%), the Philippines (-3.8%), and Thailand (-6.5%). Viet Nam is forecast to grow 4.1% in 2020. While that is 0.7 percentage points lower than ADB’s April estimates, it is the fastest growth expected in Southeast Asia.

Central Asia’s economic activity is expected to contract by 0.5% compared to the 2.8% growth forecast in April due to trade disruptions and low oil prices. Growth is forecast to recover to 4.2% in 2021.

Restricted trade flows and declining tourism numbers have dampened economic outlook for the Pacific subregion. The subregional economy is forecast to contract by 4.3% in 2020 before rising to 1.6% growth in 2021.

Source: ADB

 

World Bank Reports True Impact of Covid-19 Globally

As countries around the world contend with the health emergency of the COVID-19 pandemic, the economic effects of mitigation measures have immediately impacted the world’s commodity markets and are likely to continue to affect them in the longer term. 

The global economic shock of the pandemic has driven most commodity prices down and is expected to result in substantially lower prices over 2020, the April Commodity Markets Outlook reports. The following figures are courtesy of the World Bank.

The COVID-19 pandemic is expected to plunge most countries into recession in 2020, with per capita income contracting in the largest fraction of countries globally since 1870. Advanced economies are projected to shrink 7 percent. That weakness will spill over to the outlook for emerging markets and developing economies, who are forecast to contract by 2.5 percent as they cope with their own domestic outbreaks of the virus. 

Taking care of the land and preserving biodiversity – through healthy soil, reliable water access and pollinators – is vital for providing livelihoods for rural populations, particularly during times of economic shock like that caused by the current COVID-19 pandemic.

Healthy ecosystems have been shown to provide a lifeline to the poorest. The Poverty Environment Network project that collects income data of forest adjacent communities from 24 countries, estimates that environmental income (most of it from the forest) represents 28 percent of total income of these households 

COVID-19 Economic Impact Could Reach USD8.8 Trillion Globally —ADB Report

According to the Asian Development Bank the global economy could suffer between USD5.8 trillion and USD8.8 trillion in losses—equivalent to 6.4% to 9.7% of global gross domestic product (GDP)—as a result of the Corona Virus pandemic.

The report finds that economic losses in Asia and the Pacific could range from USD1.7 trillion under a short containment scenario of 3 months to USD2.5 trillion under a long containment scenario of 6 months, with the region accounting for about 30% of the overall decline in global output. The People’s Republic of China (PRC) could suffer losses between USD1.1 trillion and USD1.6 trillion.

Governments around the world have been quick in responding to the impacts of the pandemic, implementing measures such as fiscal and monetary easing, increased health spending, and direct support to cover losses in incomes and revenues. Sustained efforts from governments focused on these measures could soften COVID‑19’s economic impact by as much as 30% to 40%, according to the report. This could reduce global economic losses due to the pandemic to between $4.1 trillion and $5.4 trillion.

The analysis, which uses a Global Trade Analysis Project-computable general equilibrium model, covers 96 outbreak-affected economies with over 4 million COVID-19 cases. In addition to shocks to tourism, consumption, investment, and trade and production linkages covered in the ADO 2020 estimates, the new report includes transmission channels such as the increase in trade costs affecting mobility, tourism, and other industries; supply-side disruptions that adversely affect output and investment; and government policy responses that mitigate the effects of COVID-19’s global economic impact.

Under the short and long containment scenarios, the report notes that border closures, travel restrictions, and lockdowns that outbreak-affected economies implemented to arrest the spread of COVID-19 will likely cut global trade by $1.7 trillion to $2.6 trillion. Global employment decline will be between 158 million and 242 million jobs, with Asia and the Pacific comprising 70% of total employment losses. Labor income around the world will decline by $1.2 trillion to $1.8 trillion—30% of which will be felt by economies in the region, or between $359 billion and $550 billion.

Source: ADB staff estimates.

Note: The 3-month and 6-month containment periods assumed in the scenarios are country-specific. They are the assumed time needed for a country to get a domestic outbreak under control from when the outbreak intensifies and start normalizing economic activity.

Apart from increasing health spending and strengthening health systems, strong income and employment protection are essential to avoid a more difficult and prolonged economic recovery. Governments should manage supply chain disruptions; support and deepen e-commerce and logistics for the delivery of goods and services; and fund temporary social protection measures, unemployment subsidies, and the distribution of essential commodities—particularly food—to prevent sharper falls in consumption, the report says.