The World Bank on Monday said that East Asia and the Pacific region is expected to grow at 0.9% this year, the lowest since 1967, due to the coronavirus pandemic. The bank warned that up to 38 million people were expected to remain stuck in poverty or be pushed back into poverty in the region.
In its “From Containment to Recovery” report, which is an update on East Asia and Pacific economies, the financial institution said the region needs to take “swift action” so that the coronavirus pandemic does not hamper growth and increase poverty.
The bank estimated China to grow at 2%, boosted by government spending, strong exports and a low rate of new coronavirus infections since March. But it added that the Chinese economy will be held back by slow domestic consumption. For the rest of the East Asia and Pacific region, the bank projected a 3.5% contraction.
“The pandemic and efforts to contain its spread led to a significant curtailment of economic activity,” the report said. “These domestic difficulties were compounded by the pandemic-induced global recession which hit EAP [East Asia and the Pacific] economies that rely on trade and tourism hard.”
The bank added that Mongolia will likely face its first recession since 2009, with its economic output expected to contract by 2.4% this year because of poor coronavirus containment measures and weak external demand, especially in the mining and services sector.
However, the bank said the region is likely to see an upward movement in growth in 2021. “Prospects for the region are brighter in 2021, with growth expected to be 7.9% in China and 5.1% in the rest of the region, based on the assumption of continued recovery and normalisation of activity in major economies, linked to the possible arrival of a vaccine,” the bank said. “However, [the] output is projected to remain well below pre-pandemic projections for the next two years.”
It added that the outlook was “dire” for some Pacific islands, where the growth was expected to remain 10% below the pre-pandemic level through 2021.
The bank said that public and private indebtedness pose a risk to investment and the economic stability of the region. “Large fiscal deficits in EAP are projected to increase government debt on average by 7% of Gross Domestic Product in 2020,” it said.
The international financial institution called for a major economic reform to tackle the slow growth rate. It said that more progressive taxation of income and profits along with less wasteful spending could help in recovery.
It said that bank’s “overreliance” on financial institutions for extending support to different sectors could also pose a risk. “While these policies may be necessary today, credible commitments to transparency and to early restoration of financial discipline could help mitigate the risk of financial instability,” it said.
The bank also called for making strategies for smart schooling to prevent losses to human capital and supporting firms to stop bankruptcies and unemployment. It also called for large trade reforms to enhance firm productivity, avert pressures, to protect other sectors and equip people to take advantage of the digital opportunities amid the health crisis.
“Many EAP countries have been successful in containing the disease and providing relief, but they will struggle to recover and grow. The priorities now should be safe schooling to preserve human capital; widening narrow tax bases to avoid cuts in public investment; and reform of protected service sectors to take advantage of emerging digital opportunities.”— Aaditya Mattoo, World Bank's chief economist for East Asia and the Pacific
The worldwide coronavirus toll has crossed 10 lakh. Globally, the coronavirus has infected more than 3.32 crore people and killed 10,00,555, according to Johns Hopkins University. The number of recoveries has crossed 2.3 crore.