Outlook is highly uncertain, says 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.
Citing a World Trade Organization (WTO) press release, he said that 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 extreme uncertainty regarding the severity and duration of the pandemic.
Moreover, a 40% reduction in global FDI flows in 2020 is projected by the United Nations Conference on Trade and Development (UNCTAD), with a further 5-10% decrease projected for 2021. The combination of demand and supply shocks greatly affected earnings and investment decisions.
However, he also claimed that 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
In a recent forecast of the International Monetary Fund (IMF), developing Asia will count 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 the economic rebound is largely hinged 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.
Both Dr. Abiad and Dr. Hew agree that in the absence of contact tracing, a lockdown is an effective tool if only to buy time. The implementation of a lockdown, if not complemented with the necessary health and economic measures, will only delay the peak of the curve. Therefore, lockdowns are advised to be used sparingly.
Forecasts may continue to be in a downward trend as the combination of outbreak severity, stringency of lockdowns, and reduced mobility contribute to the reduction of domestic demand growth.
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 and contractions in activity are projected for most economies
Moving forward, Dr. Hew presents the importance and role of regional cooperation. “Contraction calls for decisive action,” he emphasized.
According to him, 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.