Economic outlook, highly uncertain - experts
“No economy in developing Asia has been spared,” said Dr. Abdul Abiad, Asian Development Bank (ADB) Director of the Macroeconomic Research Division, at the APEC Business Advisory Council (ABAC) webinar on the Economic Outlook for 2020-2022. He adds, “The global pandemic is not under control not only in developing Asia, but also elsewhere.”
In “COVID-19 in Developing Economies”, a book co-authored by Dr. Abiad, a loss of $6.1-$9.1 Trillion (7.1%-10.5%) of global GDP is estimated versus a no-COVID baseline.
In a separate presentation, Dr. Denis Hew, Director of the APEC Policy Support Unit, said that trade, investments, and consumption are expected to slow down in the near term.
Report from the World Trade Organization (WTO) says world trade is expected to drop substantially in the 13-32% range in 2020, with a steeper decline anticipated for sectors with complex value chains such as electronics and automotive. The wide range is attributed to the uncertainty of the COVID-19 pandemic.
On the other hand, the United Nations Conference on Trade and Development (UNCTAD) has projected a 40% reduction in global FDI flows in 2020 with a further 5-10% decrease projected for 2021. Hew said the combination of demand and supply shocks will greatly affect earnings and investment decisions.
A positive turnaround in trade growth is possible in 2021 and a rebound for FDI could begin in 2022 should sufficient fiscal, monetary, and trade policies be put in place to help economies recover.
Taking a closer look at developing economies
Meanwhile, the International Monetary Fund (IMF) forecasted that developing Asia will account for 20% of the loss of the global contraction, which is estimated to be between 4-7%. Developing Asia is also expected to see its lowest growth since 1961 – a 6.2% growth next year will be the lowest recorded growth in 6 decades.
This is not surprising as economic rebound hinges largely on the effectiveness of containment and economic measures.
Out of the ADB’s 46 developing member countries, significant outbreaks have occurred in 22 countries — with Philippines and Indonesia accounting for the bulk of the 200,000-250,000 daily cases in Southeast Asia, despite both having implemented nation-wide lockdowns.
Abiad and Hew agree that in the absence of contact tracing, a lockdown is an effective tool if only to buy time. They advised to use lockdowns sparingly and that these must be complemented with the necessary health and economic measures.
Mobility disruptions damaged global tourism
Apart from supply chain disruptions, mobility restrictions have also brought global tourism into a collapse.
In a survey done by the International Air Transport Association (IATA), more than half of the respondents said that even after travel bans are lifted, they will opt not to travel for six months to a year or more, or they've put off travel altogether.
“This is a very sobering statistic for tourism-dependent economies such as Thailand, Cambodia, and the Pacific economies,” noted Dr. Abiad.
Moving toward economic recovery
Contrary to initial expectations, the recovery of GDP levels in 2021 will not be V-shaped as contractions in economic activity are projected for most economies.
“Contraction calls for decisive action,” Dr. Hew said as he stressed on the importance of regional cooperation to address the economic slowdown brought about by the COVID-19 pandemic.
Responding through regional cooperation entails (1) the revival of economic activity by maintaining fiscal and monetary stimulus; (2) the resolution of trade and technology tensions; and (3) the reassessment of regional priorities to focus on digital inclusion, social protection, and regional pandemic preparedness policy toolkit.