World Bank Warns Of Severe Economic Pain In Asia-Pacific Due To Covid-19
Developing economies in East Asia and the Pacific are facing the prospect of a global financial shock and recession and more people are set to remain poor, thanks to the coronavirus, or Covid-19, outbreak, the World Bank said in a report late Monday.
“Significant economic pain seems unavoidable in all countries,” the World Bank said in a report titled East Asia and Pacific in the Time of Covid-19.
The lender urged countries to take action now – including urgent investments in healthcare capacity and targeted fiscal measures such as subsidies for sick pay and healthcare – to mitigate some of the immediate impacts.
The report also stressed that government should ensure temporary deprivation does not translate into long-term losses of human capital.
In a baseline scenario, growth in the EAP region is projected to slow to 2.1 percent this year from an estimated 5.8 percent in 2019, the report said. In a lower case scenario, the growth is forecast to plummet to a negative 0.5 percent.
In China, growth is projected to slow to 2.3 percent in the baseline and to 0.1 percent in the lower case scenario this year 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,” the lender said in the report that is part of its April 2020 Economic Update for East Asia and the Pacific.
The World Bank sees a serious impact on poverty from the virus shock and expects nearly 24 million fewer people to escape poverty across the region this year, in the baseline scenario, than would have in the absence of the pandemic. The poverty line used for the projection is US$5.50 a day.
In the worst case scenario, poverty is estimated to increase by about 11 million people. Previous projections estimated that nearly 35 million people would be out of poverty in the region this year that included over 25 million in China.
“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,” Victoria Kwakwa, vice president for East Asia and the Pacific at the World Bank, said.
The World Bank also urged that trade policy should remain open to ensure that medical and other supplies are available to all countries, as well as to facilitate the region’s rapid economic recovery.
The lender also recommended easing credit, but with regulatory oversight, to help households smooth their consumption and help firms survive the immediate shock.
Debt relief will be essential for poorer countries so that critical resources can be focused on managing the economic and health impacts of the pandemic, the report said.
Further, it warned of the substantially higher risk of falling into poverty among households dependent on sectors such tourism in Thailand and the Pacific Islands, manufacturing in Cambodia and Vietnam that are particularly vulnerable to COVID-19 impact.
Households dependent on informal labor in all countries are also exposed to the virus shock, the report added.
The World Bank Group has announced a US$14 billion fast-track package to boost the Covid-19 response in developing countries and shorten the time to recovery.
The projections are based on the country-level data available as of March 27.