Regional Economic Outlook

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Overview

The coronavirus disease (COVID-19) pandemic is still unfolding around the globe. In Asia, as elsewhere, the virus has ebbed in some countries but surged in others. The global economy is beginning to recover after a sharp contraction in the second quarter of 2020, as nationwide lockdowns are lifted and replaced with more targeted containment measures. Global growth has been revised up since the June 2020 World Economic Outlook (WEO) Update to −4.4 percent in 2020, because of better-than-expected second quarter outturns in some major countries where activity began to improve sooner than expected after lockdowns were scaled back. In 2021 global growth is projected at 5.2 percent, a little lower than projected earlier, consistent with the expectation that social distancing persists into 2021 and fades thereafter.

The Asia and Pacific region is also starting to recover tentatively, but at multiple speeds. Economic activity is expected to contract by −2.2 percent in 2020, due to a sharper-than- expected downturn in key emerging markets, and to grow by 6.9 percent in 2021—0.6 percentage point lower and 0.3 percentage point higher, respectively, than in the June 2020 World Economic Outlook Update (Figure 1.1).

The outlook varies by country depending on infection rates and containment measures, the scale and effectiveness of the policy response, reliance on contact-intensive activities, and reliance on external demand. In parts of Asia where virus transmission rates are low, mobility and activity could normalize faster than elsewhere. Scarring is likely, however, as labor market participation has fallen, and output is expected to remain below pre-pandemic trends over the medium term, with the most vulnerable in society likely to be hit the hardest.

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A Multispeed Recovery in Asia

The COVID-19 pandemic plunged the world into a sharp recession in the first half of 2020. Service sector activity, which relies on person-to-person contact, took a big hit. Manufacturing also weakened substantially, and global trade plummeted. Global growth is projected at –4.4 percent in 2020, 0.6 percentage points above the June 2020 World Economic Outlook Update forecast. The update reflects a better second quarter outturn in major countries that eased lockdowns earlier than expected.

The recovery is projected to be more gradual than previously forecast. In 2021 global growth is projected at 5.2 percent, 0.3 percentage point lower than projected in June 2020, reflecting the persistence of social distancing into 2021.

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COVID-19 Lockdowns and Exits in Asia: Some Lessons

This chapter uses new data and novel modeling techniques to examine the effect of containment and policy measures in affecting the health and economic consequences of the COVID-19 pandemic.

The analysis quantifies the impact of COVID-19 containment measures on the number of infections and on economic activity using real-time containment measures implemented by 129 countries (Deb and others 2020a; 2020b). Daily data on the number of COVID-19 infections and fatalities are used, along with novel high-frequency indicators of economic activity, such as the level of nitrogen dioxide (NO2) emissions. The results suggest that containment measures have been effective in flattening the pandemic curve. For example, the very stringent containment measures put in place in New Zealand (such as an international travel ban and early restrictions on gatherings and public events, followed quickly by school and workplace closures and stay-at-home orders) are likely to have reduced the number of infections by almost 90 percent relative to a baseline of no containment measures (Figure 3.1, panel 1). Containment measures have been associated with a strong decline in mobility and were more effective in halting the spread of the virus in countries where de facto mobility was curtailed the most, either because of compliance or greater voluntary social distancing stemming from fear of becoming infected (Figure 3.1, panel 2; October 2020 World Economic Outlook, Chapter 2). The flattening of the pandemic curve ensured that medical systems were not overwhelmed and reduced fatalities, laying the foundation for recovery (Figure 3.1, panel 3) and medium-term growth (Barro and others 2020).

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COVID-19 and Inequality in Asia: Risks of Social Unrest?

This chapter shows, based on high-frequency labor surveys, that inequality is increasing further during the COVID-19 pandemic because job losses have been concentrated among low-income workers. Moreover, the experience from past pandemics suggests that the adverse distributional effects could be even larger in the medium term—including, looking ahead, through the displacement of low-skilled workers by robots—and that the resulting higher levels of inequality could undermine social cohesion. This is especially salient for countries with already high inequality going into this crisis. Information from the IMF Policy Tracker shows that many Asian governments have implemented significant fiscal policy measures to mitigate the pandemic’s effect on the most vulnerable, with the impact depending on the initial coverage of safety nets, fiscal space, and degree of informality and digitalization. Although there is no one-size-fits-all solution, the model-based analysis shows that policies targeted to where needs are greatest are effective in mitigating adverse distributional consequences and underpinning overall economic activity and virus containment.