COVID-19 to inflict heavy economic cost on East Asia and the Pacific
With the country’s economy now the second largest in the world, and Asia’s largest, the COVID-19 outbreak’s impact on China is likely to cause rippling effects across East Asia and the Pacific (EAP). The biggest immediate economic costs of COVID-19, explained the World Bank in a new economic outlook report, are primarily due to the preventive behaviours of individuals and the transmission control policies of governments.
These actions have disrupted supply and froze demand, as well as limited flows of trade and tourists. And as COVID-19 spreads beyond China, citizens and governments of many other countries are reacting by taking similar action, which is hitting demand and supply in these countries in turn.
Growth in China is projected to shrink from 6.1% in last year to 2.3% if the pandemic does not get worse. But if it does, growth will come in at a meagre 0.1%. For the rest of the EAP region, the corresponding growth projections are 1.3% and -2.8% respectively.
Livelihoods will also be severely impacted, with the World Bank warning of the “serious impact” COVID-19 will have on poverty and welfare, through illness, death and lost incomes. In a worst-case scenario, some 35 million people would be expected to remain in poverty, including 25 million in China alone.
Measures recommended by the World Bank to combat COVID-19 include the recasting of fiscal and monetary policy. For example, an expansionary macroeconomic policy may be less effective in increasing production and employment during periods when workers are obliged to stay home because of social distancing requirements, but it can be important for recovery.
The World Bank also recommended that governments introduce fiscal measures that provide social protection to cushion against shocks, especially for the most economically vulnerable. Subsidies for sick pay and expenditure in health care could alleviate distress and help support containment, while expanded safety nets could provide temporary relief to families whose earnings have been adversely affected by the outbreak. As for businesses, especially small and medium enterprises, governments need to provide liquidity injections to help them stay in business and maintain beneficial links to global value chains.