UPDATE A Precarious Path to Recovery Yasuyuki Sawada Chief - PowerPoint PPT Presentation

EMBARGOED UNTIL 9:30 AM MNL/SIN/HKG time 15 September 2020 UPDATE A Precarious Path to Recovery Yasuyuki Sawada Chief Economist, Asian Development Bank 1

Key me messag ages • Developing Asia will contract (-0.7%) this year, its first contraction in six decades. Growth will rebound to 6.8% in 2021 • The downturn is broad-based—three-fourths of the region's economies are expected to contract this year. PRC is an important exception • Depressed demand and low oil prices offset supply disruptions, keeping regional inflation at 2.9% in 2020, and trimming it to 2.3% in 2021 • The main risk stems from the prospect of a prolonged COVID-19 pandemic, which could derail the recovery • The ADOU theme chapter discusses the role of wellness in development and how the wellness economy can help drive the post-COVID recovery 2

Th The glob obal l pan andemic ic p persists, an and i is at var arying stages es i in d devel elop oping A g Asia …with South Asia being the epicenter of the pandemic in The virus continues to spread globally… developing Asia. New cases, 7-day moving average New cases, 7-day moving average (Log scale) (Log scale) Latin America 100,000 South Asia 100,000 United States Developing 10,000 Asia Southeast Asia 10,000 Euro Area 1,000 1,000 Central Asia 100 100 East Asia The Pacific 10 10 1 1 0 0 Feb 2020 Mar 2020 Apr 2020 May 2020 Jun 2020 Jul 2020 Aug 2020 Mar 2020 Apr 2020 May 2020 Jun 2020 Jul 2020 Aug 2020 Note: Latin American includes Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Sources: European Centre for Disease Prevention and Control, Johns Hopkins University, Cuba, Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Mexico, Telegraph UK, and Worldometer (accessed on 8 September 2020) . Nicaragua, Panama, Paraguay, Peru, Uruguay, Venezuela. Sources: European Centre for Disease Prevention and Control, Johns Hopkins University, Telegraph UK, and Worldometer (accessed on 8 September 2020). 3

The o outbreak a and nd containment m t measu sures s restricted m mob obilit ity an and d dom omestic ic ac activ ivity… …but the mobility reductions led to steep GDP growth declines Stringent containment measures in Asia are now being eased… GDP growth decline (pp) 10 KOR Q1 SIN Q1 0 TAP Q1 IND Q1 MAL Q1 VIE Q1 INO Q1 THA Q1 SRI Q1 GEO Q1 KOR Q2 TAP Q2 HKG Q1 NEP Q1 HKG Q2 PHI Q1 KGZ Q1 KGZ Q2 VIE Q2 -10 INO Q2 MON Q2 MON Q1 SIN Q2 THA Q2 -20 MAL Q2 PHI Q2 IND Q2 -30 -40 -80 -60 -40 -20 0 20 Average mobility (change from baseline, %) Note: The Government Response Stringency index is a composite measure of nine response indicators including Notes: Red dots are ADB developing member economies. Year-on-year GDP growth relative to GDP growth in Q4 of 2019. school closures, workplace closures, and travel bans, rescaled to a value from 0 to 100, with 100 being the strictest Sources: CEIC database; Oxford University; and Google. response. Source: University of Oxford. (accessed 8 September 2020). 4

…while trade plummeted a and bottomed out—wi with As Asia’s t trade falling by less t than g global t trade Real exports Real imports % change, year on year % change, year on year World World G3 G3 10 10 Developing Asia Developing Asia 0 0 -10 -10 -20 -20 -30 -30 Jan-19 May-19 Sep-19 Jan-20 May-20 Jan-19 May-19 Sep-19 Jan-20 May-20 Notes: G3 refers to the weighted average of US, Japan, and Euro area. Developing Asia refers to the weighted average of PRC; Hong Kong, China; India; Indonesia; Republic of Korea; Malaysia; Pakistan; Philippines; Singapore; Taipei,China; Thailand; and Viet Nam. Source: CPB Netherlands Bureau for Economic Policy Analysis. Available: https://www.cpb.nl/en/worldtrademonitor (accessed 26 August 2020). 5

As As a result, growth th slumped in the first half of 2020 Growth and demand-side contributions to growth, 2019 and 2020H1, selected economies Percentage points 18 PRC and India ASEAN-5 NIEs 7.0 6.1 9 6.0 4.9 5.0 4.3 2.7 2.4 2.0 1.8 0.8 0.7 0 -0.7 -1.3 -1.2 -1.6 -9 -9.0 -6.9 -10.1 -8.3 -9.0 -6.7 -18 2019 H1 2019 H1 2019 H1 2019 H1 2019 H1 2019 H1 2019 H1 2019 H1 2019 H1 2019 H1 2019 H1 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 PRC IND INO MAL PHI THA VIE HKG ROK SIN TAP Consumption Investment Net exports GDP growth Note: Data for all economies (including India) are on calendar year basis, i.e., calendar year 2019 and calendar H1 2020 (March and June quarters of 2020). Details may not add up to total due to statistical discrepancy. Sources: Haver Analytics; CEIC Data Company (both accessed 31 August 2020); ADB estimates. 6

Asian an g governmen ents stepped ed i in wi with a wi wide- rangi ging c crisis response… e… Policy packages in developing Asia % of GDP Government support to income/revenue Credit creation 10 Liquidity support 8.9 Direct long-term lending Equity support 7.9 8 6.2 5.7 6 4.8 4.2 3.8 4 3.4 3.2 2.7 2.7 2.4 1.8 1.8 2 1.4 1.2 1.0 0.9 0.7 0.3 0.2 0.2 0.2 0.2 0.1 0.1 0.0 0.0 0.0 0.0 0 Developing Asia East Asia Southeast Asia South Asia Central Asia The Pacific Note: Data as of 24 August 2020. Source: Compiled from ADB COVID-19 Policy Database, https://covid19policy.adb.org/ (accessed on 8 September 2020). 7

…wh …which helped ed capital al f flows a and f finan ancial al markets ts r rec ecover a after a an initi tial n nosed edive After substantial outflows in March, foreign portfolio …and financial market recovered, to varying degrees. flows returned… Equity index Portfolio flows India People's Republic of China NIEs ASEAN-5 $ billion Equity Debt 10 1 Jan 2020 = 100 120 0 100 -10 80 -20 60 Jan Apr Jul Oct Jan Apr Jul J a n M a r M ay Jul 2019 2020 2 0 2 0 Note: Total equity flows includes economies of the People’s Republic of China; India; Indonesia; Pakistan; Source: CEIC Data Company; Bloomberg (both accessed 31 August 2020). Philippines; Republic of Korea; Sri Lanka; Taipei,China; Thailand; and Viet Nam. Total debt flows includes economies of India, Indonesia, and Thailand only. 8 Source: Institute of International Finance Capital flow tracker database (accessed 31 August 2020)

Regional G l GDP w will c l con ontract this y year, for the f e first t time i in n nea early 6 6 dec ecades… s… GDP growth in developing Asia GDP levels in developing Asia GDP level, 2015 = 100 % 140 8 Pre-COVID trend 6.8 6.2 6 130 5.9 6.2 April 2020 5.1 ADO 4 June 2020 120 2.2 ADOS September 2020 2 ADO Update 0.1 110 0 -0.7 -2 100 2018 2019 2020 2021 2015 2016 2017 2018 2019 2020 2021 Forecast Forecast Source: Asian Development Outlook database. 9

…and t …a the d decline i e is b broad ad-based ed, a affecting most e econ onom omies. 2020 2021 2020 2021 ADO ADOU ADO ADOU ADO ADOU ADO ADOU East Asia 2.0 1.3  6.5 7.0  South Asia 4.1 -6.8  6.0 7.1  Hong Kong, China -3.3 -6.5  3.5 5.1  Bangladesh 7.8 5.2  8.0 6.8  PRC 2.3 1.8  7.3 7.7  India 4.0 -9.0  6.2 8.0  Republic of Korea 1.3 -1.0  2.3 3.3  Pakistan 2.6 -0.4  3.2 2.0  Taipei,China 1.8 0.8  2.5 3.5  Central Asia 2.8 -2.1  4.2 3.9  Southeast Asia 1.0 -3.8  4.7 5.5  Azerbaijan 0.5 -4.3  1.5 1.2  Indonesia 2.5 -1.0  5.0 5.3  Kazakhstan 1.8 -3.2  3.6 2.8  Malaysia 0.5 -5.0  5.5 6.5  Philippines -7.3  The Pacific -0.3 -6.1  2.7 1.3  2.0 6.5 6.5 Singapore 0.2 -6.2  2.0 4.5  Fiji -4.9 -19.8  3.0 1.0  Thailand -4.8 -8.0  2.5 4.5  Papua New Guinea 0.8 -2.9  2.8 2.5  Viet Nam 1.8  6.3  4.8 6.8 -0.5  6.7 Developing Asia 2.2 -0.7  6.2 6.8  Excluding NIEs 2.4 7.2   = upgraded forecast,  = downgraded forecast, no sign = unchanged. Source: Asian Development Outlook database. 10

The r regi egion’s t s two gi giants a ts are e on divergent paths. s. While COVID-19 has been contained in the PRC, India …so while growth is rebounding in the PRC, recovery is now the epicenter of the pandemic in the region… in India will take longer Growth in India and PRC COVID-19 daily cases New cases, 7-day moving average % change year on year (Log scale) 100,000 8 3.2 India 10,000 0 1,000 PRC -8 100 10 PRC -16 India 1 -24 0 -23.9 Feb Mar Apr May Jun Jul Aug -32 2020 2020 2020 2020 2020 2020 2020 2019 Q1 Q2 Q3 Q4 2020 Q1 Q2 Source: Johns Hopkins University. Sources: CEIC Data Company (accessed 10 August 2020); ADB estimates. 11

Dep Depresse ssed dem demand and l lower oil p prices w s will keep r region onal i inflation on m muted ed Weak demand and low oil prices will dampen inflationary pressures… …while current accounts will largely stabilize across the region Inflation (%) Current account balance (% of GDP) 3.2 2.9 2.9 2.5 2.3 2.3 Central Asia South Asia Southeast Asia East Asia 2018 2019 ADO ADOU ADO ADOU 2021 2020 Forecast Source: Asian Development Outlook database. Source: Asian Development Outlook database. 12