ADB sees slowdown for developing Asia-Pacific

Andrew Cummings
April 4, 2020

The cost of the coronavirus pandemic could be as high as $4.1 trillion, or nearly 5% of global gross domestic product, depending on the disease's spread through Europe, the US and other major economies, the Asian Development Bank said.

The current account deficit is expected to continue narrowing to 2.8% of the gross domestic product in FY2020 based on the reduction in trade deficit resulting from exchange rate depreciation and the imposition of regulatory duties to contain import demand, the ADB report noted.

Growth in China, the region's largest economy, could slow to 2.3 percent this year from 6.1 percent in 2019, before bouncing back in 2021.

"The Philippine government has been cutting its debt ratio to 41-42% previous year, so the Philippine government has indeed sufficient fiscal space to respond and many Southeast Asian countries that have public finance that are in good shape", Mr. Sawada said during the launch of the report streamed on the ADB website.

"No one can say how widely the Covid-19 pandemic may spread, and containment may take longer than now projected", ADB chief economist Yasuyuki Sawada said. "The possibility of severe financial turmoil and financial crises can not be discounted". The country grew 2.4 percent past year.

Tourism and commodity industries have been battered by travel bans and the lockdown of cities. Nine Asian economies that rely on these sectors are likely to shrink, the ADB said.

The World Bank had earlier this week forecast a 4.9 percent growth, while market research firm Fitch Solutions estimated it a 2.8 percent, the lowest since 1986. "But India's macroeconomic fundamentals remain sound, and we expect the economy to recover strongly in the next fiscal year".

Countries that have robust trade ties with China, which itself is facing slowing growth, are also headed for a sharp deceleration.

The bank outlook said that economic growth in the Asia Pacific region is expected to dip sharply to 2.2% this year under the current health crisis. ADB economists added that the Philippine government has enough space to spend more to hasten the growth rebound.

The ADB stated that inflation in the subregion will soften to 4.1% in 2020 as food inflation will ease in India with improved agriculture. India, the region's largest economy, is seen to expand in 2020 by 4.0% amid a credit crunch, before picking up steam next year with 6.2% expansion.

Noting that COVID-19 has not yet spread extensively in India, ADB said measures to contain the virus and a weaker global environment will whip up headwinds, offsetting support from corporate and personal income tax cuts as well as financial sector reforms which are meant to revive credit flows. Some commodity and oil exporters, such as those in Central Asia, will be hit by a collapse in commodity prices.

Sawada said the only way to stop the spread of the virus was by "strong and coordinated" efforts, particularly for vulnerable communities.

"Leaving aside external upheaval, growth in Pakistan will slow as agriculture stagnates, notably affecting cotton output, and as stabilisation efforts constrain domestic demand", said the report.

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