WASHINGTON, 30 March 2020 — The virus that triggered a supply shock in China has now caused a global shock. Developing economies in East Asia and the Pacific (EAP), recovering from trade tensions and struggling with COVID-19, now face the prospect of a global financial shock and recession.
The World Bank says that countries must take action now to mitigate some of the immediate impacts, according to East Asia and Pacific in the Time of COVID-19, the World Bank’s April 2020 Economic Update for East Asia and the Pacific.
Growth in the developing EAP countries is projected to slow to 2.1 percent in the baseline and to negative 0.5 in the lower-case scenario in 2020, from an estimated 5.8 percent in 2019.
Growth in China is projected to decline to 2.3 percent in the baseline and 0.1 percent in the lower-case scenario in 2020, from 6.1 percent in 2019. 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.
Based on the report, 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 countries in 2020, including over 25 million in China alone.
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 – such as 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.
The report calls for international cooperation and new cross-border public-private partnerships to ramp up the production and supply of key medical supplies and services in the face of the pandemic, and to ensure financial stability in the aftermath.
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 emphasizes 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.
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 and manufacturing in Cambodia and Vietnam.
The World Bank Group is rolling out a US$14 billion fast-track package to strengthen the COVID-19 response in developing countries and shorten the time to recovery. The immediate response includes financing, policy advice and technical assistance to help countries cope with the health and economic impacts of the pandemic.
As countries need broader support, the World Bank Group will deploy up to US$160 billion over 15 months to protect the poor and vulnerable, support businesses, and bolster economic recovery.