Emerging economies globally have been facing the brunt of the COVID-19 pandemic as they struggle to find the right balance between managing public health and the health of their economies. Prolonged lockdowns in most countries globally have resulted in both, a demand as well as a supply slump, a decrease in consumption and investment, and an increase in unemployment.
Developing Asian economies—although somewhat better placed economically than their peers elsewhere—have not escaped the effects of the pandemic. The Asian Development Bank (ADB) lowered its growth estimates for developing Asian economies in its latest Asian Development Outlook Update, and now forecasts a 0.7% contraction in gross domestic product (GDP) for the region.
This marks the region’s first economic contraction in close to six decades, underscoring the devastating impacts of the pandemic on the economy and society. “This has set back efforts to lift hundreds of millions of people in our region out of poverty,” according to ADB Chief Economist Yasuyuki Sawada.
“The region’s economies have been affected via various channels from steep falls in domestic demand due to lockdowns, to plunging exports and tourism due to the global nature of the pandemic,” according to Mr Sawada.
Developing Asia hasn’t been alone in getting hammered by the pandemic. Economies in the euro area contracted 14.7% on a year-on-year (y-o-y) basis in the second quarter of 2020, while the US economy shrank by 9.1% in the same period. This has had severe implications on several regional economies because global demand has slumped. While there are some signs of a bottoming out of the freefall, consumer confidence and investor confidence are both still suppressed.
The Asian Development Bank (ADB) lowered its growth estimates for developing Asian economies in its latest Asian Development Outlook Update, and now forecasts a 0.7% contraction in gross domestic product (GDP) for the region. This marks the region’s first economic contraction in close to six decades.
A related factor impacting many of the region’s economies and supply chains is the plummeting of world trade. The decline in trade has bottomed out, according to the ADB, but not before they resulted in a contraction in Asian exports across the board. There was some respite in the form of increased demand for certain products such as healthcare supplies from China, and stronger demand for electronic and electrical devices owing to increased digitalisation, which itself has been one of the consequences of the pandemic.
There are, however, some bright spots that are still expected to see some degree of economic growth. The ADB expects China to grow at 1.8% this year and 7.7% next year, as it has managed to rein in the spread of the outbreak. This is in sharp contrast to India, which witnessed a record 23.9% decline in the second quarter of the year, and is expected to see its economy contract by 9% this year.
A few other key emerging economies in the region that are expected to witness growth in 2020 are Bangladesh (5.2%), Vietnam (1.8%) and Taiwan (0.8%).
Outlook for 2021
While the region is expected to witness GDP growth of 6.8% in 2021, it is going to be from a lower base than in 2019, which implies the total output in 2021 will be lower than what was expected prior to the outbreak of the pandemic.
“This means the recovery will not be V-shaped but more likely an L-shaped or ‘swoosh-shaped’ recovery,” said Mr Sawada, adding that “the path to recovery remains precarious”. If the pandemic continues, either in the form of a prolonged first wave or recurrent waves, this growth outlook could be further hit. This is because another outbreak will potentially result in some economic activity shutting down one more time, resulting once again in business disruption.
“This would leave lasting scars, erode economies’ productive capacity, and possibly result in financial crises,” Mr Sawada warned.
Asian developing economies can be further adversely impacted by a potential escalation in the technology and trade war between the US and China.
If the pandemic continues, either in the form of a prolonged first wave or recurrent waves, this growth outlook could be further hit.
Hit hard by the crisis, governments across Asia have tried to prop up their economies—and people—by providing $3.6 trillion in economic stimulus packages, equivalent to about 15% of the region’s GDP.
The ADB has revised downward its growth estimates for developing Asia twice already in the past six months as governments have struggled to cope with the pandemic and its health and economic impacts. With the spread of the virus continuing unabated in some parts of the region—such as South Asia—a sharper than expected contraction isn’t out of the question.