COVID-19: Economic Impact and Policy Responses in Asia

Presenter: Matthias HelbleRegional Cooperation and Integration DivisionEconomic Research and Regional Cooperation DepartmentAsian Development Bank

AID-FOR-TRADE INFORMATION WEBINAR“SUPPORTING COVID-19 RESPONSE AND RECOVERY”WTO, 27 May 2020

Key Messages

1. The latest ADB estimates of the COVID-19 impact range between $5.8 trillion and $8.8 trillion (6.4% to 9.7% of global GDP).

2. Government policy responses will soften the COVID-19 impact by 30%‒40%, to $4.1 trillion to $5.4 trillion (4.5% to 5.9% of global GDP).

3. ADB’s COVID-19 assistance package to its developing member countries amounts to $20 billion.

4. Governments should refrain from protectionist measures and avoid from long-term government involvement in the private sector.

5. More regional cooperation needed when moving to the “new normal” and enhancing crises preparedness.

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COVID-19: Economic and Trade Impact

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Jan-14 Dec-14 Nov-15 Oct-16 Sep-17 Aug-18 Jul-19

East Asia

PRC HKG JPN KOR MON TAP

Apr-20

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-60

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Jan-14 Dec-14 Nov-15 Oct-16 Sep-17 Aug-18 Jul-19

Central Asia

ARM GEO

Apr-20

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Jan-14 Dec-14 Nov-15 Oct-16 Sep-17 Aug-18 Jul-19

Southeast Asia

INO SIN THA VIE

Apr-20

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Jan-14 Dec-14 Nov-15 Oct-16 Sep-17 Aug-18 Jul-19

South Asia

IND NEP PAK

Apr-20

Exports deteriorate during COVID-19 across Asia

y-o-y = year-on-year.Source: ADB calculations using data from CEIC and Haver Analytics (accessed 26 May 2020).

Monthly Export Growth (%, y-o-y)

Example: PPE Supply Chain Bottlenecks

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Source: Asian Development Bank (2020b) based on Alderman (2020), Feng and Cheng (2020), Hufford and Evans (2020), Henneberry (n.d.).

ADB GDP Impact Assessment

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Deviation from the non-COVID-19 baseline, %

Short Containment Long Containment

Global -6.4 -9.7

Asia, ex-PRC -4.6 -7.2

PRC -7.5 -11.2

ROW -6.5 -9.8

Notes:Short containment: 3 months from the start of the domestic outbreak to get the virus spread under control and to start normalizing economic activity.Long containment: 6 months from the start of the domestic outbreak to get the virus spread under control and to start normalizing economic activity.

PRC= People’s Republic of ChinaROW= Rest of the WorldFigures obtained from Global Trade Analysis Project (GTAP) Source: ADB (2020a)

Direct Support to Income or Revenue in Response to COVID19—ADB member economies (% of GDP)

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Source: ADB (2020a)

GDP ($ Billion) GDP (%)

Short Containment Long Containment Short Containment Long Containment

Global -4,096 -5,388 -4.5 -5.9

Asia -1,329 -1,854 -4.9 -6.8

Central Asia -11 -15 -1.8 -2.4

East Asia ex PRC -146 -220 -5.3 -8.0

PRC -834 -1,127 -5.8 -7.8

Southeast Asia -120 -166 -3.4 -4.7

South Asia -134 -203 -3.7 -5.6

Australia/ NZL -81 -119 -4.1 -6.0

Pacific -3 -4 -4.1 -6.0

G3 -2,246 -2,758 -4.6 -5.7

US -966 -1,183 -4.6 -5.7

Japan -127 -95 -2.3 -1.7

EU & UK -1,116 -1,479 -5.0 -6.7

Notes: Short containment: 3 months from the start of the domestic outbreak to get the virus spread under control and to start normalizing economic activity.Long containment: 6 months from the start of the domestic outbreak to get the virus spread under control and to start normalizing economic activity. G3= United States, Japan, and European Union plus United Kingdom, GDP = Gross domestic product, NZL = New Zealand, PRC= People’s republic of ChinaSource: ADB (2020a)

GDP Impact with Policy InterventionsDeviation from the non-COVID-19 baseline

COVID-19: Responses by countries and ADB

Measures by countries to tackle COVID-19

• ADB COVID-19 Policy Database (latest update May 18, 2020): https://covid19policy.adb.org

• Various measures taken with different purposes.

Example: Policy Responses in ASEAN+3

Type of measure JapanRepublic of

Korea

People's Republic of

China

Association of Southeast Asian Nations (ASEAN)

Brunei Darussalam

Cambodia IndonesiaLao People's Democratic

RepublicMalaysia Myanmar Philippines Singapore Thailand Viet Nam

Functioning money markets (%)

9.85 0 18.96 0 0 39.77 0 3.74 0 21.80 0 0 0

Credit creation (%) 0 2.27 0.14 0 0 15.36 0 36.09 0 11.89 0 31.48 0

Lending to non-financial sector (%)

0 56.37 3.69 100 0 0 0 4.46 72.31 1.39 31.33 16.67 51.52

Equity claims on the private sector (%)

8.00 4.85 0 0 0 0 0 0 0 0 0 0 0

Direct support to income (%)

82.14 18.14 42.13 0 2.91 44.87 100 55.71 27.69 49.06 68.67 51.85 48.48

International assistance (lender/donor) (%)

0.02 0.22 0.002 0 0 0 0 0 0 0 0 0 0

No breakdown (%) 0 18.14 35.08 0 97.09 0 0 0 0 15.86 0 0 0

Total (%) 100 100 100 100 100 100 100 100 100 100 100 100 100

Note: Largest share in red.

ADB’s response to COVID-19 for its developing member countries

• In early April, ADB tripled its COVID-19 assistance package to its developing member countries to $20 billion: $18.2 billion for sovereign operations and $1.8 billion for the private sector (ADB, 2020d).

• About $2.5 billion in concessional and grant resources.

• ADB’s response aims at addressing 3 main areas:

i. Emergency lending and budget support: flexible and help mitigate the BOP crisis together with other IFIs/IMF.

ii. Assistance for the most-hit sectors in order to restore and strengthen resilience as well as provide support for economic recovery.

iii. Provide support for the most vulnerable groups.

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COVID-19 Pandemic Response Option (CPRO)

• ADB adapted its policy-based lending toolkit by a COVID-19 Pandemic Response Option (CPRO) under the existing Countercyclical Support Facility (CSF) in support of fiscal stimulus.

• In response to the COVID-19 pandemic:• Expanded the eligibility of CPRO to include group A DMCs.

• One main requirement is to implement a COVID-19 pandemic response plan.

• Limit for the size of CPRO for all DMCs equal to 0.5% of the country’s nominal GDP with a maximum amount of $1.5 billion for group C DMCs, $500 million for group B DMCs, and $250 million for group A DMCs.

• ADB has made an additional $13 billion resources available.

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Expansion of ADB’s Trade Finance Program

• ADB’s Trade Finance Program (TFP) reduces market gaps for trade finance by (i) providing guarantees and loans to banks in support of trade; and (ii) delivering knowledge products, services, and solutions.

• In response to COVID-19 pandemic:• Enable TFP to support transactions of more products (involving goods in

projects that are category B for the environment).

• Enable TFP to use local currency for loans and guarantees issued under the program.

• Increase the aggregate TFP limit from $1.4 billion to $2.2 billion.

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Examples of ADB’s responses to COVID-19

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Target economies Project titleAmount

($million)Approval date

IndonesiaCOVID-19 Emergency Response 3.0 20 Mar 2020

COVID-19 Active Response and Expenditure Support Program 1,500.0 23 Apr 2020

Philippines

COVID-19 Emergency Response 3.0 13 Mar 2020

Implementing a Rapid Emergency Supplies Provision (RESP) Assistance to Design a Sustainable Solution for COVID-19 Impact Areas in the National Capital Region, Through a Public Private Collaboration

5.0 26 Mar 2020

COVID-19 Active Response and Expenditure Support Program 1,500.0 23 Apr 2020

Social Protection Support Project (Second Additional Financing) 200.0 27 Apr 2020

China, People’s Rep. of

COVID-19 Emergency Response (Nonsovereign) 18.6 20 Feb 2020

COVID-19 Emergency Energy Supply (Nonsovereign) 20.0 30 Mar 2020

Southeast Asia Policy Advice for COVID-19 Economic Recovery in Southeast Asia 5.0 24 Apr 2020

Source: ADB. COVID-19 (Coronavirus): ADB’s Response. https://www.adb.org/what-we-do/covid19-coronavirus (accessed 19 May 2020).

COVID-19 and Trade Policy

Balancing Acts

• Safeguarding public health interests, while preserving open trade regime.Ex. Discussions on restricting the movement of health care workers.

• Keeping the private sector afloat, while ensuring that competition is notdistorted. Ex. Temporary relief from electric bill payment for SME's.

• Increase resilience, while keeping costly duplication of supply chains tothe minimum. Ex. Programs to help firms diversify their operations.

• Starting the support is obvious, when and how to phase it out less.

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After closing borders, slowly reopening...

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JAN FEB MAR APR MAY

harmful neutral liberalizing

Source: Global Trade Alerts and ADB calculationsNote: Based on 147 measures reported by GTA between January and 12th May for regional ADB member countries.

Trade Measures by Asian countries by type (January – May 2020)

Looking forward

• Existing trade tensions could be further exacerbated by economic and trade impact of COVID-19.

• Transparent and predictable trade regime more important than ever.

• Countries should move away from unilateral action.

• More regional and global cooperation is needed when moving to the “new normal” (ex. preparing for future public health emergencies; tourism).

• Creating more resilient supply chains should not lead to protectionism, but be based on regional and global efforts including the private sector.

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Thank you very much for your attention.

For further questions and comments:

mhelble@adb.org

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References

• ADB (2020a) Updated Assessment of the Potential Economic Impact of COVID-19

• ADB (2020b) Global Shortage of Personal Protective Equipment amid COVID-19: Supply Chains, Bottlenecks, and Policy Implications

• ADB (2020c) Food Security in Asia and the Pacific Amid the COVID-19 Pandemic (forthcoming)

• ADB (2020d) Enhancing ADB's Response to the Global Economic Crisis. Policy Paper.

• ADB (2019) Operations Manual.

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Extra slides

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GTAP: How COVID-19 Affects the Economy

Note: The GTAP analysis does not include GTAP on migration and remittance; capital flows, debt and financial markets; and environment. There are also no

time lags, capacity constraints, or funding restrictions in the model. It also assumed that announced macroeconomic stabilization packages are

implemented fully.

Higher trade costs

Negative productivity shock

Policy response

Trade impact:

Supply:

Demand:

Policy Response:

• Lower goods trade• Lower services trade

• Transport restrictions• Impaired labor mobility• Production disruptions

• Lower consumption• Weaker investment

• Increased health spending• Fiscal Stimulus• Liquidity injections

Trade Impact with Policy InterventionsDeviation from non-COVID-19 baseline

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Trade ($ Billion) Trade (% of GDP)

Short Containment Long Containment Short Containment Long Containment

Global -1,712 -2,623 -1.9 -2.9

Asia -755 -1,155 -2.8 -4.3

Central Asia -4 -5 -0.6 -0.8

East Asia ex PRC -66 -109 -2.4 -3.9

PRC -317 -490 -2.2 -3.4

Southeast Asia -229 -344 -6.5 -9.7

South Asia -101 -148 -2.8 -4.1

Australia/NZL -39 -59 -2.0 -3.0

Pacific 0.3 0.3 -0.3 -0.3

G3 -676 -1,069 -1.4 -2.2

US -70 -42 -0.3 -0.2

Japan -174 -271 -3.2 -4.9

EU& UK -432 -756 -1.9 -3.4

Notes: Short containment: 3 months from the start of the domestic outbreak to get the virus spread under control and to start normalizing economic activity.Long containment: 6 months from the start of the domestic outbreak to get the virus spread under control and to start normalizing economic activity. G3= United States, Japan, and European Union plus United Kingdom, GDP = Gross domestic product, NZL = New Zealand, PRC= People’s republic of ChinaSource: ADB (2020a)

Country Groups

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Source: ADB (2019)