Manila: Developing Asia will barely grow in 2020 as containment measures to address the coronavirus disease (covid-19) pandemic hamper economic activity and weaken external demand, according to a new set of forecasts from the Asian Development Bank (ADB).
In a regular supplement to its annual flagship economic publication, the Asian Development Outlook (ADO) 2020 released in April, ADB forecasts growth of 0.1 percent for the region in 2020. This is down from the 2.2 percent forecast in April and would be the slowest growth for the region since 1961. Growth in 2021 is expected to rise to 6.2 percent, as forecast in April. Gross domestic product (GDP) levels in 2021 will remain below what had been envisioned and below pre-crisis trends.
Excluding the newly industrialized economies of Hong Kong, China; the Republic of Korea; Singapore; and Taipei,China, developing Asia is forecast to grow 0.4 percent this year and 6.6 percent in 2021.
“Economies in Asia and the Pacific will continue to feel the blow of the covid-19 pandemic this year even as lockdowns are slowly eased and select economic activities restart in a ‘new normal’ scenario,” said ADB Chief Economist Yasuyuki Sawada in a press release on Thursday, June 18, 2020.
“While we see a higher growth outlook for the region in 2021, this is mainly due to weak numbers this year, and this will not be a V-shaped recovery. Governments should undertake policy measures to reduce the negative impact of covid-19 and ensure that no further waves of outbreaks occur," he added.
Economic activity in Southeast Asia is expected to contract by 2.7% this year before growing by 5.2% in 2021. Contractions are forecast in key economies as containment measures affect domestic consumption and investment, including Indonesia (-1.0 percent), the Philippines (-3.8 percent), and Thailand (-6.5 percent). Viet Nam is forecast to grow 4.1 percent in 2020. While that is 0.7 percentage points lower than ADB’s April estimates, it is the fastest growth expected in Southeast Asia.
Indonesia saw growth in the first quarter of 2020 drop to 3.0 percent year on year, its slowest pace since 2001. Domestic consumption growth fell to 2.8 percent as households reduced discretionary spending, though public consumption picked up gradually. Growth in fixed investment decelerated to 1.7 percent as investment in buildings and other structures wound down and investment in machinery and equipment contracted. Meanwhile, sustained demand for palm oil and metal ores partly countered contraction in exports of services and oil and gas.
With household consumption falling sharply in the first quarter of 2020 and limited prospects for recovery of investment and exports in the near term, growth is forecast to contract by 1.0 percent in 2020, but then expand by 5.3 percent in 2021 on stronger household discretionary spending and global economic recovery. Investment reform in 2020 should spur growth further in the second half of 2021.