Reeling from COVID-19 pandemic

Danial Norjidi

Economic growth in the East Asia and Pacific region is projected to accelerate to 7.4 per cent in 2021 according to the regional outlook in the World Bank’s January 2021 Global Economic Prospects.

The East Asia and Pacific regional economy slowed to an estimated 0.9 per cent last year.

The severity of the COVID-19 pandemic shock was uneven, however. In China and Vietnam, which effectively controlled the spread of the virus, gross domestic product (GDP) is estimated to have expanded by two per cent and 2.8 per cent respectively. Activity has been supported by a resumption of production and exports, with additional boosts from stimulus-fuelled public investment, the report stated.

The rest of the region suffered significant output losses. The economies that suffered the worst declines were those with extended periods of lockdown combined with large domestic outbreaks or domestic policy uncertainty, and those with a heavy reliance on tourism and travel.

Restrictions on economic activity to stem the pandemic have largely eased across the region and goods exports have started to recover.

Growth in the region is projected to accelerate to 7.4 per cent in 2021 led by a rebound in China. This is predicated on the rollout of an effective vaccine in the first quarter of 2021 in major economies and later in smaller emerging market and developing economies. Nevertheless, economic activity in the region is expected to remain below pre-pandemic trend by late 2021, reflecting lasting damage from the COVID-19 shock, according to the report.

Investment and productivity are expected to remain depressed and uncertainty is likely to remain elevated.

Meanwhile, growth in China is projected to climb to 7.9 per cent in 2021. In the rest of the region, growth is anticipated to be more protracted and output is expected to remain 7.5 per cent below pre-pandemic projections by 2022, albeit with significant cross-country differences.

The recovery is expected to be fragile, and the materialisation of a number of downside risks could derail the projected recovery.

A downside scenario in which vaccine rollout is delayed and the global recovery is weaker could hold regional growth to 5.4 per cent in 2021, the report stated.

Risks to the outlook are tilted to the downside. The pandemic could last longer than expected, the longterm damage from last year’s recessions could be deeper than anticipated, balance sheet stress could intensify, or the contraction in global trade could be sharper or longer lasting than envisioned, it said.

More countries in the region could experience difficulties with procurement and distribution of the vaccine than currently anticipated. Although the region entered the pandemic with relatively robust monetary and fiscal policy frameworks, most countries are expected to face substantial deteriorations in fiscal positions and elevated debt.

Elevated debt levels may weigh on activity if deleveraging pressures prompt authorities to tighten policy prematurely. On the upside, the rapid deployment of an effective vaccine could trigger a stronger-than-expected rebound in major economies and in global demand, the report found. In terms of its global outlook, the report revealed that global economy is expected to expand four per cent in 2021, assuming an initial COVID-19 vaccine rollout becomes widespread throughout the year.

World Bank Group President David Malpass said, “While the global economy appears to have entered a subdued recovery, policymakers face formidable challenges – in public health, debt management, budget policies, central banking and structural reforms – as they try to ensure that this still fragile global recovery gains traction and sets a foundation for robust growth.

“To overcome the impacts of the pandemic and counter the investment headwind, there needs to be a major push to improve business environments, increase labor and product market flexibility, and strengthen transparency and governance.”