Economies across developing Asia will contract this year for the first time in nearly six decades but recovery will resume next year, as the region starts to emerge from the economic devastation caused by the coronavirus disease (COVID-19) pandemic, according to a report by the Asian Development Bank (ADB).
The Asian Development Outlook (ADO) 2020 Update forecasts -0.7 percent gross domestic product (GDP) growth for developing Asia this year—marking its first negative economic growth since the early 1960s. Growth will rally to 6.8 percent in 2021, in part because growth will be measured relative to a weak 2020. This will still leave next year’s output below pre-COVID-19 projections, suggesting an “L”-shaped rather than a “V”-shaped recovery. About three-quarters of the region’s economies are expected to post negative growth in 2020.
“Most economies in the Asia and Pacific region can expect a difficult growth path for the rest of 2020,” said ADB Chief Economist Yasuyuki Sawada. “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.”
A prolonged COVID-19 pandemic remains the biggest downside risk to the region’s growth outlook this year and next year. To mitigate the risk, governments in the region have delivered wide-ranging policy responses, including policy support packages—mainly income support—amounting to $3.6 trillion, equivalent to about 15 percent of regional GDP.
Other downside risks arise from geopolitical tensions, including an escalation of the trade and technology conflict between the United States and the People’s Republic of China (PRC), as well as financial vulnerabilities that could be exacerbated by a prolonged pandemic.
The PRC is one of the few economies in the region bucking the downturn. It is expected to grow by 1.8 percent this year and 7.7 percent in 2021, with successful public health measures providing a platform for growth. In India, where lockdowns have stalled consumer and business spending, GDP contracted by a record 23.9 percent in the first quarter of its fiscal year (FY) and is forecast to shrink nine percent in FY2020 before recovering by eight percent in FY2021.
Subregions of developing Asia are expected to post negative growth this year, except East Asia which is forecast to expand by 1.3 percent and recover strongly to 7.0 percent in 2021. Some economies heavily reliant on trade and tourism, particularly in the Pacific and South Asia, face double-digit contractions this year. Forecasts suggest that most of developing Asia will recover next year, except for some economies in the Pacific including the Cook Islands, the Federated States of Micronesia, the Marshall Islands, Palau, Samoa, and Tonga.
The inflation forecast for developing Asia is revised downwards to 2.9 percent this year from 3.2 percent forecast in April, due to continued low oil prices and weak demand. Inflation for 2021 is expected to ease further to 2.3 percent.
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