Developing economies in East Asia and the Pacific could be hardest hit by the coronavirus pandemic, and the fallout could force millions in the region into poverty.
Already, countries like Thailand, Vietnam and Cambodia are facing global “financial shock” and the prospect of recession, the World Bank said in an economic update Monday.
“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,” World Bank vice president for East Asia and the Pacific Victoria Kwakwa said. “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.”
Those strengths, like “sound macroeconomic policies” and “prudent financial regulation,” while enough to shore up countries in the region to field some of the blows coronavirus has dealt, won’t suffice for staving off the adverse impacts.
At this point, World Bank said, “Significant economic pain seems unavoidable in all countries.”
And that’s looking at the economic situation from a vantage point where the pandemic may yet to have peaked in the region.
Worldwide, according to the World Health Organization (WHO) situation report released Monday, 693,224 cases of COVID-19 have been confirmed globally. In China, where total confirmed cases stand at 82,447, daily reports of new cases have started to slow. In the rest of the East Asia and Pacific region, cases are still climbing. So far, the coronavirus has stricken 106,583 people in the region, or 15.3 percent of the world’s total cases—and the infections are expected to climb.
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“The epidemic is far from over in Asia and the Pacific. This is going to be a long-term battle and we cannot let down our guard,” WHO regional director for the Western Pacific Dr. Takeshi Kasai said in a media briefing following the World Bank’s report. While social distancing and lockdown measures are helping to stem the spread, “the risk will not go away as long as the pandemic continues,” he said. “Rather, these measures can buy us valuable time to prepare for large scale community transmissions.”
Amid the pileup of uncertainty, precise growth projections are elusive. But in one baseline scenario World Bank offers, growth in the developing EAP region is projected to slow to 2.1 percent. In the lower case scenario, growth could contract to negative 0.5 percent in 2020, down from an estimated 5.8 percent last year. In China, growth in the baseline scenario would drop from 6.1 percent in 2019 to 2.3 percent. If conditions worsen, that growth could fall as low as 0.1 percent.
“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,” World Bank said.
The shock of the whole situation will have a “serious impact” on poverty, and nearly 24 million fewer people will escape poverty across the region this year. Prior projections had pegged nearly 35 million people escaping poverty in the EAP region this year.
“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,” World Bank said.
The poverty risk is even higher for households depending on sectors hard-hit by the pandemic, like manufacturing, putting places like Vietnam and Cambodia at substantial disadvantage.
To lessen the longer-term ramifications, World Bank is recommending “urgent” investments in national healthcare capacity, targeted fiscal measures like sick pay, and an integrated view of containment and macroeconomic policies, to “ensure that temporary deprivation does not translate into long-term losses of human capital.” It’s also recommending easing credit to help households with their consumption and businesses with their immediate adverse impacts, like cancelled orders, shuttered factories and locked-down workers.
“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 economic report said.
Doing its part to aid, World Bank Group is doling out a $14 billion package to help developing countries with their COVID-19 response and “shorten the time to recovery.” The package includes financing, technical assistance and policy advice for navigating the pandemic’s economic impacts. The International Finance Corporation (IFC) is also providing $8 billion to help private companies and preserve jobs.
“As countries need broader support, the World Bank Group will deploy up to $160 billion over 15 months to protect the poor and vulnerable, support businesses, and bolster economic recovery,” World Bank said.
Now, cross-border cooperation may be more necessary than ever for the region.
“In addition to bold national actions, deeper international cooperation is the most effective vaccine against this virulent threat,” World Bank chief economist for East Asia and the Pacific Aaditya Mattoo said. “Countries in East Asia and the Pacific and elsewhere must fight this disease together, keep trade open and coordinate macroeconomic policy.”