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East Asia and the Pacific: What will a resilient recovery require?

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For people in East Asia and the Pacific, there has been almost nothing like this in living memory. COVID-19 has dealt a triple shock to the once-booming economy of the region: first the pandemic itself, then the impact of containment measures, and finally through the ensuing global recession. 

For Southeast Asian countries, the only comparable analogy is 1997-98, when the Asian financial crisis led to an economic meltdown. In China, the last time economic growth was this weak was 1976, at the end of the Mao Zedong era.

Overall, the region is expected to grow by only 0.9% in 2020, with country outcomes generally related to how efficiently the disease was contained and how exposed countries were to external shocks. While China is forecast to grow by 2.0% in 2020, the rest of the region is projected to contract by 3.5%.

As the World Bank’s October 2020 Economic Update for East Asia and the Pacific shows, the effects of this crisis are being felt widely by millions of people across the region.

The pandemic is not only keeping people in poverty, it is creating ‘new poor’—with the worst impacts among those working in the informal sector, or in hard-hit sectors such as tourism.  Data gathered from World Bank household phone surveys in May and June show the breadth of the crisis, with close to or over 80% of households reporting earning losses from either wage or non-farm family business sources in Cambodia, Indonesia and Myanmar. World Bank Business Pulse surveys show sales falling by a third for large firms, and nearly half for small and micro enterprises, compared to the year before.

In response, the region’s governments have committed nearly 5% of their GDP on average to strengthen public health systems, support households, and help firms to avoid bankruptcy. Compared to pre-pandemic spending levels of roughly 1% of GDP, which made the East Asia and Pacific region the stingiest in the world when it came to social protection, these efforts seem practically heroic. But some countries have struggled to scale up their programs, and it is unclear how long this spending can be maintained. Large fiscal deficits are projected to increase government debt on average by 7% of GDP in 2020.

Prospects for recovery differ across countries in the region. Some countries that have to date successfully contained the virus, such as China and Vietnam, have already seen a revival of economic activity. Others like Indonesia, the Philippines, and more recently Myanmar, are still struggling to contain the disease.

Moreover, all the region’s economies are heavily exposed to the rest of the world, and the world has entered a recession deeper than any in living memory. Here again there are differences. Countries like China, Vietnam and Malaysia depend on exports of goods like computers and televisions. Demand for these products and trade in them has been resilient and is reviving as global economic activity gradually resumes. But others like the Philippines, Thailand, and the Pacific Island Countries are more dependent on tourism and remittances, neither of which will recover any time soon. And while short-term capital has returned to the region, global uncertainty still inhibits domestic and foreign investment.

In the face of this still-evolving set of challenges, what can governments in the region do to bring their economies back on track, and lay the groundwork for a lasting and resilient recovery? 

There are no easy answers, but the October Economic Update—entitled “From Containment to Recovery”—lays out a few key areas where acting today could ease tough tradeoffs tomorrow:

  • Building capacity for smart containment – including to test, trace and isolate – would help contain disease surges with more targeted and less economically disruptive measures.
  • Widening the tax base with more progressive taxation of income and profits and less wasteful spending on regressive energy subsidies could allow greater spending on relief without sacrificing public investment.
  • Widening social protection to cover all existing and new poor combined with investment in the infrastructure of delivery would ensure that help reaches people when they need it. 
  • Safe schooling to protect students, staff, teachers and their families—including sanitary protocols, social distance practices, student re-enrollment—could prevent long-term losses of human capital, especially among the poor. 
  • Reform of still-protected services sectors—such as finance, transport, and communications—could enhance firm productivity and equip people to take advantage of the digital opportunities whose emergence the pandemic is accelerating.


Aaditya Mattoo

Chief Economist, East Asia and Pacific Region, World Bank

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