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

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UPDATE

A Precarious Path to Recovery

EMBARGOED UNTIL 9:30 AM MNL/SIN/HKG time 15 September 2020

Yasuyuki Sawada Chief Economist, Asian Development Bank

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

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Th The glob

• bal

l pan andemic ic p persists, an and i is at var arying stages es i in d devel elop

• ping A

g Asia

The virus continues to spread globally… …with South Asia being the epicenter of the pandemic in developing Asia.

Note: Latin American includes Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Mexico, 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).

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Sources: European Centre for Disease Prevention and Control, Johns Hopkins University, Telegraph UK, and Worldometer (accessed on 8 September 2020) .

1 10 100 1,000 10,000 100,000 Mar 2020 Apr 2020 May 2020 Jun 2020 Jul 2020 Aug 2020

New cases, 7-day moving average (Log scale)

Developing Asia Latin America United States Euro Area 1 10 100 1,000 10,000 100,000 Feb 2020 Mar 2020 Apr 2020 May 2020 Jun 2020 Jul 2020 Aug 2020

New cases, 7-day moving average (Log scale)

South Asia Southeast Asia Central Asia East Asia The Pacific

The o

• utbreak a

and nd containment m t measu sures s restricted m mob

• bilit

ity an and d dom

• mestic

ic ac activ ivity…

Stringent containment measures in Asia are now being eased…

4

Note: The Government Response Stringency index is a composite measure of nine response indicators including school closures, workplace closures, and travel bans, rescaled to a value from 0 to 100, with 100 being the strictest

• response. Source: University of Oxford. (accessed 8 September 2020).

Notes: Red dots are ADB developing member economies. Year-on-year GDP growth relative to GDP growth in Q4 of 2019. Sources: CEIC database; Oxford University; and Google.

…but the mobility reductions led to steep GDP growth declines

GEO Q1 HKG Q1 IND Q1 INO Q1 KGZ Q1 MAL Q1 MON Q1 NEP Q1 PHI Q1 SIN Q1 KOR Q1 SRI Q1 TAP Q1 THA Q1 VIE Q1 HKG Q2 INO Q2 KGZ Q2 MAL Q2 MON Q2 PHI Q2 SIN Q2 KOR Q2 TAP Q2 THA Q2 VIE Q2 IND Q2

• 40
• 30
• 20
• 10

10

• 80
• 60
• 40
• 20

20

Average mobility (change from baseline, %) GDP growth decline (pp)

…while trade plummeted a and bottomed out—wi with As Asia’s t trade falling by less t than g global t trade

• 30
• 20
• 10

10 Jan-19 May-19 Sep-19 Jan-20 May-20 World G3 Developing Asia 5

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).

Real exports

% change, year on year

Real imports

% change, year on year

• 30
• 20
• 10

10 Jan-19 May-19 Sep-19 Jan-20 May-20 World G3 Developing Asia

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

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Sources: Haver Analytics; CEIC Data Company (both accessed 31 August 2020); ADB estimates. 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.

6.1

• 1.6

4.9

• 10.1

5.0

• 1.3

4.3

• 8.3

6.0

• 9.0

2.4

• 6.9

7.0 1.8

• 1.2
• 9.0

2.0

• 0.7

0.7

• 6.7

2.7 0.8

• 18
• 9

9 18 2019 H1 2020 2019 H1 2020 2019 H1 2020 2019 H1 2020 2019 H1 2020 2019 H1 2020 2019 H1 2020 2019 H1 2020 2019 H1 2020 2019 H1 2020 2019 H1 2020 PRC IND INO MAL PHI THA VIE HKG ROK SIN TAP

Consumption Investment Net exports GDP growth

Percentage points

NIEs ASEAN-5 PRC and India

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

Note: Data as of 24 August 2020. Source: Compiled from ADB COVID-19 Policy Database, https://covid19policy.adb.org/ (accessed on 8 September 2020).

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7.9 8.9 5.7 4.8 6.2 2.7 2.4 2.7 1.8 1.8 0.2 0.1 3.2 3.4 1.0 4.2 1.4 0.0 1.2 0.9 3.8 0.2 0.3 0.7 0.2 0.2 0.1 0.0 0.0 0.0 2 4 6 8 10 Developing Asia East Asia Southeast Asia South Asia Central Asia The Pacific Government support to income/revenue Credit creation Liquidity support Direct long-term lending Equity support % of GDP

…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

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• 20
• 10

10 Jan 2019 Apr Jul Oct Jan 2020 Apr Jul

Equity Debt

$ billion

After substantial outflows in March, foreign portfolio flows returned…

Note: Total equity flows includes economies of the People’s Republic of China; India; Indonesia; Pakistan; Philippines; Republic of Korea; Sri Lanka; Taipei,China; Thailand; and Viet Nam. Total debt flows includes economies

• f India, Indonesia, and Thailand only.

Source: Institute of International Finance Capital flow tracker database (accessed 31 August 2020)

…and financial market recovered, to varying degrees.

Source: CEIC Data Company; Bloomberg (both accessed 31 August 2020).

Portfolio flows Equity index

60 80 100 120 J 2 a n 2 0 M a r M ay Jul

India People's Republic of China NIEs ASEAN-5

1 Jan 2020 = 100

Regional G l GDP w will c l con

• ntract 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

Source: Asian Development Outlook database.

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GDP levels in developing Asia

100 110 120 130 140 2015 2016 2017 2018 2019 2020 2021 GDP level, 2015 = 100 Forecast Pre-COVID trend

5.9 5.1

• 0.7

6.8 2.2 6.2 0.1 6.2

• 2

2 4 6 8 2018 2019 2020 2021 %

April 2020 ADO September 2020 ADO Update

Forecast

June 2020 ADOS

 = upgraded forecast,  = downgraded forecast, no sign = unchanged.

Source: Asian Development Outlook database.

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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 2.0

• 7.3 

6.5 6.5 The Pacific

• 0.3
• 6.1 

2.7 1.3  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 4.8 1.8  6.8 6.3 

Developing Asia 2.2

• 0.7 

6.2 6.8  Excluding NIEs 2.4

• 0.5  6.7

7.2 

…a …and t the d decline i e is b broad ad-based ed, a affecting most e econ

• nom
• mies.

The r regi egion’s t s two gi giants a ts are e on divergent paths. s.

Growth in India and PRC

3.2

• 23.9
• 32
• 24
• 16
• 8

8

2019 Q1 Q2 Q3 Q4 2020 Q1 Q2

% change year on year

India PRC

11

Sources: CEIC Data Company (accessed 10 August 2020); ADB estimates.

…so while growth is rebounding in the PRC, recovery in India will take longer While COVID-19 has been contained in the PRC, India is now the epicenter of the pandemic in the region…

1 10 100 1,000 10,000 100,000

Feb 2020 Mar 2020 Apr 2020 May 2020 Jun 2020 Jul 2020 Aug 2020

India PRC

New cases, 7-day moving average (Log scale)

Source: Johns Hopkins University.

COVID-19 daily cases

Dep Depresse ssed dem demand and l lower oil p prices w s will keep r region

• nal i

inflation

• n m

muted ed

Weak demand and low oil prices will dampen inflationary pressures…

Source: Asian Development Outlook database.

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…while current accounts will largely stabilize across the region

2.5 2.9 3.2 2.9 2.3 2.3 2018 2019 ADO ADOU ADO ADOU Forecast

East Asia Southeast Asia South Asia

Central Asia

2020 2021

Inflation (%) Current account balance (% of GDP)

Source: Asian Development Outlook database.

Ri Risks r s rem emain t tilted t to the e downsi side i in a an uncertain ne new normal

• The main risk centers on the evolution of COVID-19—a prolonged

pandemic (extended first wave, or recurrent waves) could stifle the recovery, with further supply and demand disruptions; protracted weakness could trigger crises in some economies

• Worsening geopolitical tensions are another risk, most notably potential

for intensified US–PRC frictions over trade and technology

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Source: Global Wellness Institute

• Wellness is the active pursuit of

activities, choices, and lifestyles that lead to a state of holistic health

• It is part of the UN SDGs (SDG 3:

Ensuring healthy lives and promoting the well-being for all, at all ages)

• Physical and mental health has taken a

battering during COVID-19

• Wellness economy is a large and growing

part of the regional economy

• Policymakers can promote wellness to

support post-pandemic recovery

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ADOU OU 2020 t them eme: e: W Wellnes ess i in W Worryi ying T g Times es

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

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Append ndix

16

Downside e risk k scenario:

• :

impact o

• f prolon
• nged

ed g global al p pandem emic

17 PRC = People’s Republic of China, IND = India, FY = fiscal year, EA = emerging Asia. EA includes Hong Kong, China, Malaysia, Philippines, Republic of Korea, Singapore, Taipei,China, Thailand and Vietnam. Note: Data for India are in fiscal years ending 31 March of the next year. Source: ADB estimates using the Global Projection Model (GPM).

Effect on GDP (relative to ADOU baseline) • Renewed (but “smarter”) containment

measures in the US, euro area, Asia (ex. PRC), and elsewhere where the number of cases are still rising quickly affect both supply and demand.

• Main impact is domestic, with some

global spillovers through trade and financial channels

• Growth in 2020 would be lower by

1.3pp in the PRC, 3.4pp in India, and 4.0pp in “other emerging Asia” bloc; with additional losses in 2021.