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Asia and the Global Economy’s COVID-19 Plunge

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Asia and the Global Economy’s COVID-19 Plunge

The World Bank’s forecasts are not rosy for the world economy, but some will hurt more than others.

Asia and the Global Economy’s COVID-19 Plunge
Credit: NASA

The coronavirus pandemic has taken a devastating toll on the global economy, with many analysts settling on the notion that the world is in for a recession as a result. But just how bad will the economic effects of the pandemic be?

This week the Wold Bank released its June 2020 Global Economic Prospects report with a grim headline: COVID-19 to Plunge Global Economy into Worst Recession since World War II. The global economy, the World Bank says, is now forecasted to shrink by 5.2 percent in 2020.

While all will suffer from the “swift and massive shock of the coronavirus pandemic and shutdown measures,” some will suffer less and others more. Advanced economies, for example, are anticipated to shrink 7 percent; emerging and developing economies will shrink too, but only by 2.5 percent. This is even more stark when looking at the regional breakdowns.

Of the World Bank regions which map onto those that we cover here at The Diplomat — East Asia and Pacific, Europe and Central Asia, and South Asia — the East Asia and Pacific region is projected to fare the best, relatively, with growth slowing to .5 percent, the lowest rate since 1967. South Asia, the World Bank forecasts, could see a contraction of 2.7 percent in 2020 and Europe and Central Asia a contraction of 4.7 percent.

But within the World Bank’s defined regions, the variations between countries can be quite wild.

Take the Europe and Central Asia region as one example, encompassing the countries of Central and Eastern Europe, the Western Balkans, the South Caucasus and Central Asia (only the latter of which do we cover comprehensively here). Every sub-region is expected to face contractions, with the worst being a 5 percent contraction for Central Europe. Central Asia is only expected to contract by 1.7 percent — and Uzbekistan is the only country in entire regional group for which a contraction is not forecasted. Instead, while Tashkent is estimated to have seen 5.6 percent growth in 2019, 2020 will see that fall to growth of just 1.5 percent. But hey, it’s a positive number and better yet, the World Bank forecasts that growth in Uzbekistan with jump to 6.6 percent in 2021.

In the East Asia and Pacific region, while growth writ large is expected to slow to .5 percent, but take China out of the equation and the data adds up to a contraction of 1.2 percent in 2020. China’s growth is expected to slow to 1 percent this year. The World Bank highlights contractions for other major economies in the region — 3.1 percent contraction for Malaysia, 1.9 percent for the Philippines, and 5 percent for Thailand. Of the countries covered in the forecast, the Solomon Islands will see the largest contraction, 6.7 percent; the closure of borders in the islands has kept the virus out, but also cut off one of its largest industries, tourism. And while the World Bank forecasts a rebound for nearly all the countries in the region, the Solomon Islands is the only country covered that is currently forecasted to have its COVID-19 contraction stretch into 2021.

In South Asia the deepest contraction is expected in the Maldives, like the Solomon Islands, doomed by the 2020 destruction of global tourism. The Maldives in 2020 are forecasted to see a contraction of 13 percent. India and Pakistan are among the few countries for which the World Bank’s data is presented by the fiscal year, ending in March, rather than calendar year. For FY2019, which ended in March 2020, India is forecasted to have seen growth slow to 4.2 percent. For reference, India’s growth numbers had been slowing anyway — FY2016 saw growth of 8.3 percent, followed by 7 percent the next year and 6.1 percent in FY2018 — but COVID-19 has accelerated that trend. For FY2020, India’s economy will contract by 3.2 percent. Pakistan had already been struggling to grow, with the estimates for FY2018 a measly 1.9 percent, but is forecasted to see a contraction in FY2019, at 2.6 percent, and also in 2020, of .2 percent. 

It’s important to note that the World Bank’s forecasts are predicated on a few assumptions that are far from guaranteed: that lockdown restrictions will begin relaxing globally over the summer, that there isn’t a second major wave of infections and as such adverse global spillovers begin to ease in the second half of the year and financial markets can recover. The World Bank notes that “the outlook is highly uncertain and downside risks are predominant, including the possibility of a more protracted pandemic, financial upheaval, and retreat from global trade and supply linkages.”

While the World Bank has forecasted that the global economy will shrink by 5.2 percent in 2020 — the “downside scenario” its report notes pegs that contraction at 8 percent.