JAKARTA (TheInsiderStories) – Developing economies in East Asia and the Pacific (EAP), already struggling with international trade tensions and COVID-19, now face a global shock as the pandemic hits major economies around the world. The countries must act quickly, cooperatively, and at scale.
The virus that triggered a supply shock in China has now caused a global shock. Sound macroeconomic policies and prudent financial regulation have equipped most EAP countries to deal with normal tremors.
But we are witnessing an unusual combination of disruptive and mutually reinforcing events. Significant economic pain seems unavoidable in all countries. Countries must take action now – including urgent investments in healthcare capacity and targeted fiscal measures – to mitigate some of the immediate impacts, according to East Asia and Pacific in the Time of COVID-19.
In a rapidly changing environment, making precise growth projections is unusually difficult. Therefore, the report presents both a baseline and a lower case scenario. Growth in the developing EAP region is projected to slow to 2.1 percent in the baseline and to negative 0.5 in the lower case scenario in 2020, from an estimated 5.8 percent in 2019.
Growth in China is projected to decline to 2.3 percent in the baseline and 0.1 percent in the lower case scenario in 2020, from 6.1 percent in 2019. Containment of the pandemic would allow for a sustained recovery in the region, although risks to the outlook from financial market stress would remain high.
The COVID-19 shock will also have a serious impact on poverty. The report estimates that under the baseline growth scenario, nearly 24 million fewer people will escape poverty across the region in 2020 than would have in the absence of the pandemic (using a poverty line of US$5.50/day).
If the economic situation were to deteriorate further, and the lower-case scenario prevails, then poverty is estimated to increase by about 11 million people. Prior projections estimated that nearly 35 million people would escape poverty in EAP in 2020, including over 25 million in China alone.
Countries in East Asia and the Pacific that were already coping with international trade tensions and the repercussions of the spread of COVID-19 in China are now faced with a global shock. The good news is that the region has strengths it can tap, but countries will have to act fast and at a scale not previously imagined.
Among the actions are urgent investments in national healthcare capacity and longer-term preparedness. She also suggests taking an integrated view of containment and macroeconomic policies.
Targeted fiscal measures – such as subsidies for sick pay and healthcare – would help with containment and ensure that temporary deprivation does not translate into long-term losses of human capital. In addition to bold national actions, deeper international cooperation is the most effective vaccine against this virulent threat. Countries in EAP and elsewhere must fight this disease together, keep trade open and coordinate macroeconomic policy.
We calls for international cooperation and new cross-border public-private partnerships to ramp up the production and supply of key medical supplies and services in the face of the pandemic, and to ensure financial stability in the aftermath. Critically, trade policy should stay open so medical and other supplies are available to all countries, as well as to facilitate the region’ rapid economic recovery.
Another policy recommendation is easing credit to help households smooth their consumption and help firms survive the immediate shock.However, given the potential of an extended crisis, we emphasizes the need to couple such measures with regulatory oversight, particularly as many countries in EAP already carry a high burden of corporate and household debt. For poorer countries, debt relief will be essential, so that critical resources can be focused on managing the economic and health impacts of the pandemic.
The substantially higher risk of falling into poverty among households dependent on sectors that are particularly vulnerable to COVID-19 impacts, such as tourism in Thailand and the Pacific Islands, manufacturing in Cambodia and Vietnam, and among households dependent on informal labor in all countries.
In some countries, the impact of COVID-19 comes on top of country-specific factors, such as droughts (Thailand) or commodity shocks (Mongolia). In the Pacific Island countries, the outlook for 2020 is subject to substantial risks due to their economies’ reliance on grants, tourism, and imports.
Due to the COVID-19 pandemic, economic circumstances within countries and regions are fluid and change on a day-by-day basis. The analysis in the report is based on the latest country-level data available as of March 27.
by Victoria Kwakwa and said Aaditya Mattoo from World Bank