MANILA: Developing economies in Asia will contract in 2020, the first such downturn in nearly 60 years, the Asian Development Bank said Tuesday in an update to its forecasts.
The update of the ADB's outlook estimates the regional economy will contract 0.7 per cent this year, recovering to 6.8 per cent growth in 2021. The regional lender said that conditions could deteriorate further if the coronavirus pandemic worsens significantly.
The update downgrades growth estimates for many countries in the region, where outbreaks of coronavirus have surged in some countries, such as the Philippines and Indonesia.
The report said that China, where the pandemic began, has already begun to recover and will see its economy grow 1.8 per cent this year and 7.7 per cent in 2021. The 6.1 per cent growth for China's economy in 2019 was the slowest pace in decades.
The report noted that Asia's status as a production base for many medical products, digital devices and optical equipment helped to cushion the blow to trade from the pandemic downturn. The report said that nonetheless, the downturn is the worst since the early 1960s. "This has set back efforts to life hundreds of millions of people in our region out of poverty," said ADB's chief economist Yasuyuki Sawada.
Governments in many countries have imposed border controls, lockdowns and other restrictions to stem the spread of the coronavirus and prevent more outbreaks. But such measures come at a huge economic cost.
To help compensate, regional governments have promised USD 3.6 trillion, equivalent to about 15 per cent of regional economic activity, in subsidies, loans and other support for individuals and businesses. "But small companies that account for most business in the region are short of capital to weather the crisis," the ADB said.
It expects a recovery to be "L-shaped", or "swoosh-shaped" rather than V-shaped. Sawada said that even with a recovery, economies will be "substantially below expectations before COVID-19".
The report said that a prolonged pandemic could put countries into debt crises or destabilize their financial markets. "Another risk would be worsening geopolitical tensions, most notably potential for US-PRC (China) friction over trade and technology to intensify," it said.
South and Southeast Asian countries have seen some of the worst devastation from the pandemic, with Malaysia, the Philippines, Singapore and Thailand logging double-digit contractions in the April-June quarter from a year earlier.
All of their economies are expected to shrink by 5 per cent or more this year. The report said that strong government spending will be crucial to support their recoveries. The ADB said that ensuring health systems are improved is also vital for sustained growth. "Physical and mental wellness has taken a battering during the crisis. A sound mind and a sound body, of course that's the first step to rebuilding the economy and the societ," said ADB economist Donghyung Park.