EAP growth projected to slow to 2.1% in baseline: WB

06 Apr '20

3 min read

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Growth in the East Asia and Pacific (EAP) region is projected to slow to 2.1 per cent in the baseline and to negative 0.5 in the lower case scenario in 2020 from an estimated 5.8 per cent in 2019, says a World Bank (WB) report. China’s growth is likely to fall 2.3 per cent in the baseline and 0.1 per cent in the lower case scenario in 2020, from 6.1 per cent in 2019.

The COVID-19 shock will also have a serious impact on poverty. The World Bank’s April 2020 Economic Update for EAP 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 $5.50 per 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, the bank said in a press release.

“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,” said Victoria Kwakwa, vice president for EAP at the bank. “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 recommended by the report are urgent investments in national healthcare capacity and longer-term preparedness. The report also suggests taking an integrated view of containment and macroeconomic policies. Targeted fiscal measures like 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 East Asia and the Pacific and elsewhere must fight this disease together, keep trade open and coordinate macroeconomic policy,” said Aaditya Mattoo, chief economist for EAP at the bank.

The report calls for international cooperation and new cross-border public-private partnerships to ramp up 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’s 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, the report emphasises 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 report said.

The report also highlights 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 labour in all countries.

In the Pacific Island countries, the outlook for 2020 is subject to substantial risks due to their economies’ reliance on grants, tourism, and imports.

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