From Containment to Recovery: Economic Update for East Asia and the Pacific, October 2020

 The World Bank, Oct. 2020

 

The COVID-19 shock is not only keeping people in poverty, but also creating a class of ‘new poor’.  The number of people living in poverty in the region is expected to increase by as many as 38 million in 2020 – including 33 million who would have otherwise escaped poverty, and another 5 million pushed back into poverty – using a poverty line of $5.50/day (2011 PPP).

Summary of Key Findings

The COVID-19 pandemic has delivered a triple shock to the developing EAP: the pandemic itself, the economic impact of containment measures, and reverberations from the global recession.

The EAP region, where COVID-19 originated, has to date suffered less from the disease than other parts of the world. Those countries that have contained the spread of the disease to date used a combination of stringent mobility restrictions, extensive testing-based strategies, and information programs to encourage precautionary behavior.

However, the pandemic and efforts to contain its spread led to a significant curtailment of economic activity.

The region as a whole is expected to grow by only 0.9 percent in 2020, the lowest rate since 1967. Prospects for the region are brighter in 2021.

The COVID-19 shock is not only keeping people in poverty, but also creating a class of "new poor."

The employment and earning impacts of the pandemic have been large and widespread.

COVID-19 will have a lasting impact on inclusive longer-term growth by hurting investment, human capital, and productivity.

Left unremedied, these consequences of the pandemic could reduce regional growth over the next decade by 1 percentage point per year.

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Key Recommendations

Policy choices to contain the disease and provide relief today would ideally be informed by how they will affect recovery and growth tomorrow. Governments face difficult trade-offs. Significant expenditure on relief or a consumption-supporting stimulus may leave an indebted government less-equipped to invest in infrastructure and hence growth. And how governments distribute the burden of the public debt across individuals and over time – through indirect taxes, income and profit taxes, inflation or financial repression – will matter for both growth and distribution.

The crisis has shown that taking a dynamic view could help EAP governments make choices today that soften trade-offs tomorrow in seven key areas:   

• Building capacity for smart containment – including to test, trace and isolate – would help contain disease surges with more targeted and less economically disruptive measures. At the same time, cooperating internationally to incentivize the development of a vaccine and preparing to distribute it efficiently and fairly would contribute to social stability and facilitate economic recovery. 
• Initiating fiscal reforms could allow greater spending on relief without sacrificing public investment. Large fiscal deficits in EAP are projected to increase government debt on average by 7 percentage points of GDP in 2020.  High and growing private debt constitutes an additional indirect risk for government finances.  Widening the tax base with more progressive taxation of income and profits and less wasteful spending on regressive energy subsidies, in some cases over 2 percent of GDP, could make recovery more inclusive and sustainable.

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In full: https://www.worldbank.org/en/region/eap/publication/east-asia-pacific-economic-update