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Most Asian economies are heading for contraction

A man eats a takeaway meal on a chair located outside a restaurant in the Kowloon-side Sham Shui Po district of Hong Kong early in the morning of July 29, 2020, as new social distancing measures take effect, which include restaurants that only must serve takeaway meals to combat a new wave of coronavirus infections.

Anthony Wallace | AFP | Getty Images


1; Development Asia, which includes countries such as China, India, Indonesia and Singapore, will enter into contracts this year for the first time in about six decades as the coronavirus pandemic continues to hammer economies worldwide, the Asian Development Bank said.

In its updated outlook report, ADB said that GDP in developing Asia will decline 0.7% this year. The bank also said three-quarters of the region’s economies are set to shrink by 2020, downgrading its GDP forecasts for those countries.

The pandemic, which has now infected more than 29 million people worldwide, slowed domestic consumption, affected external demand and hit exports, Yasuyuki Sawada, ADB’s chief economist, said on Tuesday on CNBC’s “Street Signs Asia.”

“On top of that, travel bans undermine the free flow of people as well as trade in goods and services,” he said.

In an effort to curb the spread of the virus, some countries have closed the borders to non-residents, while most have implemented varying degrees of social restrictions, including periods of total lock-in in places like India.

South and Southeast Asia

Southeast Asia was previously expected to grow by 1% for the year, but is now expected to contract by 3.8%, with Thailand, the Philippines and Singapore each experiencing declines of more than 6%, ADB said. The Philippines and Indonesia have reported the most infections among the Southeast Asian countries.

China, where the coronavirus outbreak first reported in late December, is the only country expected to record positive growth, albeit well below levels the world’s second-largest economy has reported in recent years. China is set to record a 1.8% expansion in 2020, down from an earlier forecast of 2.3% as the economy slowly gets back on track, according to the report.

Infection levels in the country appear to be under control. This is in contrast to the rapid outbreak in India, which is now the epicenter of the pandemic in Asia with more than 4.8 million reported cases.

India is expected to record a 9% decline for the calendar year 2020, ADB said. This was revised from an earlier forecast of 4% growth. India’s fiscal year runs from April 1 to March 31 of the following year. In the three months between April and June, India’s economy fell at its steepest pace of 23.9% following a national downturn between April and May.

Growth rebound

Growth is likely to return in 2021, with the development Asia expected to record 6.8% expansion. India is expected to grow by 8% for the next calendar year, according to the report.

“Our basic assumption is that Covid-19 can be controlled by this year, towards the end of this year. Once the health risks are contained, we can imagine a strong setback,” Sawada told CNBC. He explained that governments in developing countries in Asia and the Pacific have already announced aid measures totaling more than $ 3 trillion, with some as high as 15% of GDP. Many of these countries still have room for further expansive or accommodating policies, he said.

“I think it’s very, very important to keep households, especially poor households and vulnerable groups, as well as micro and small businesses maintain and stay alive so that after the onset of a health crisis they can recover strongly,” Sawada said, adding that “the big package helped stabilize the financial markets.”

A large portion of the amount came from governments in East Asia, particularly China, computer data show.

But the bank warned in its report that a prolonged wave of Covid-19 infections could stifle recovery and further disrupt demand and supply, while a worsening geopolitical tension, particularly among the US and China, remains a risk.

Prolonged weakness could trigger crises in some economies, ADB said.

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