presented by: aaditya mattoo chief economist east asia and...

Presented by:

Aaditya MattooChief Economist

Ergys IslamajSenior Economist

East Asia and the Pacific RegionWorld Bank

October 2020

COVID-19 has sharply reduced growth in the region

Source: World Bank Economic MonitoringNote: Growth for 2020 refers to October 2020 EAP Update estimates

-15

-10

-5

0

5

10

15

20

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

China EAP excl. ChinaPercent

China's Cultural Revolution

Tangshan earthquake

Asian Financial Crisis

Global Financial Crisis

COVID-19

World Bank East Asia and Pacific Economic Update, October 2020

Key points

• Relatively successful containment and relief, but a struggle to recover and grow.

• Longer-term impact depends less on the virus and more on how governments respond.

• Growth rates could be 1% lower every year for the next ten years –unless there is meaningful reform.


Successful containment

A. Total confirmed cases

(Cumulative number per million)B. New confirmed cases

(7-day moving average)

Source: European Centre for Disease Prevention and Control 2020; World Bank staff elaboration.Note: Last data point September 10.

with important exceptions

0

1

2

3

4

5

6-J

an

1-F

eb

27

-Fe

b

24

-Ma

r

19

-Ap

r

15

-Ma

y

10

-Jun

6-J

ul

1-A

ug

27

-Au

g

22

-Se

p

Thousands

China

Indonesia

Philippines

Myanmar

Rest of developing EAP


Much of the world has sunk into an unprecedented recession

Proportion of economies in recession and the contraction in GDP per capita growth

Source: Authors’ figure adapted from World Bank 2020a. Data from Inklaar et al. 2018; Kose, Sugawara, and Terrones 2019, 2020.Note: 2020 uses forecast data. Shaded areas refer to global recessions. Sample includes 183 economies though the sample size varies significantly by year. For crises that last for more than a year, the annualized average of the cumulative contraction of GDP per capita growth during the crisis is used.

0

1

2

3

4

5

6

7

8

0

20

40

60

80

1001

871

18

76

18

85

18

93

19

08

19

141

917

-21

19

30-3

3

19

38

19

45-4

6

19

75

19

82

19

91

20

09

20

20

Oil price shock

Oil price shock, globalinflation, monetary policy &

Latin America debt crisis

The Great Depression

Bank panic

WWII

Post WWI & Depression

-

-

-

-

-

-

-

Percent (red)

Exchange rate crisis and end of Cold War

Global Financial Crisis

COVID-19

Eco

no

mie

sin

rec

essi

on

Percent (orange)

-

GD

P p

er c

apita

gro

wth

co

ntr

actio

n


EAP countries are exceptionally but differently exposed

Exposure to trade and remittances

0

30

60

90

120

Vie

tna

mC

am

bo

dia

Mala

ysia

Tha

ilan

dM

on

go

liaP

NG

Ph

ilip

pin

es

La

o P

DR

Mya

nm

ar

Indo

ne

sia

Ch

ina

Tim

or-

Le

ste

Mars

ha

ll Is

.T

on

ga

Va

nu

atu

Pa

lau

Sa

mo

aF

ijiS

olo

mo

n I

s.M

icro

ne

sia

Tuva

luN

au

ruK

irib

ati

East Asia Pacific Islands

Goods exportsServices exportsRemittances

Percent of GDP

Source: World Bank.Note: Unweighted average over 2017-19 period or three latest years available. World Bank East Asia and Pacific Economic Update, October 2020

Firm sales and household earnings mirror the macroeconomic contraction

A. Drop in monthly sales (vs prior year) B. Share of households with earning losses from

either wage or non-farm family business sources (%)

Source: Business Pulse Surveys. EAP High frequency phone surveys, first round.Note: A. The survey was conducted in May for Myanmar, June for Cambodia, Indonesia, Vietnam, and July for the Philippines. Monthly sales refers to firm sales in the last completed month (in the case of Myanmar) or the last 30 days (other countries) prior to the survey, relative to the same period in 2019. Micro is defined as firms having less than 5 employees, SME as having 5-99 employees, large as having 100+ employees. In the case of the Philippines, the change is between July and April, when Enhanced Community Quarantine (ECQ) was adopted. B. Survey dates are indicated underneath the country names. In Mongolia and Cambodia, wage losses are reported for the whole household, not only head of households.

-52

-58-59 -58

-44

-51-53

-56

-60

-37-37

-29

-49-51

-42

-70

-60

-50

-40

-30

-20

-10

0

Cambodia Indonesia Myanmar Philippines Vietnam

Micro SME LargePercent

85

79 79

66

59

53

33

0

20

40

60

80

100

Myanmar5/18-6/3

Indonesia5/1-5/17

Cambodia5/1-5/17

PNG6/17-7/2

Mongolia5/22-6/2

Lao PDR6/20-7/16

Vietnam6/5-7/8

Perc

en

t o

f h

ou

seh

old

s w

ith

wag

e/b

usi

ness

in

com

e


To stem the pain, governments provided fiscal support to firms and households

A. Fiscal support B. Income support and revenue exemptions

Source: International Monetary Fund June 2020 World Economic Outlook Update; World Bank staff estimates. Note: Data are as of September 12, 2020. Data refer to general government, except for Indonesia, Malaysia and the Philippines which refer to central government only. Income and revenue support measures include direct transfer payments, reduction or deferral of payment commitments, foregone revenue from tax cuts, credits and exemptions, and other financial assistance to individuals and firms

0

2

4

6

8

10

12

14

Th

aila

nd

Mo

ngo

lia

Ma

laysia

Ca

mb

od

ia

Ch

ina

Ph

ilipp

ine

s

Ind

one

sia

Vie

tna

m

Mya

nm

ar

La

o P

DR

Percent of GDP

4.9 percent, on average

0

1

2

3

4

5

6

7

Mo

ngo

lia

Th

aila

nd

Ma

laysia

Ch

ina

Ph

ilipp

ine

s

Ca

mb

od

ia

Ind

one

sia

Vie

tna

m

Mya

na

ma

r

Percent of GDP

Households Firms


Most regional economies are expected to contract in 2020

A. Developing East Asia, projected growth 2020 B. Pacific Island economies, projected growth 2020

Source: World Bank. Note: Estimates

Vietnam

China

Myanmar

Lao PDRIndonesia

Cambodia

Mongolia

Papua New Guinea

Malaysia

Timor-Leste

Philippines

Thailand

-10

-8

-6

-4

-2

0

2

4

Percent

Tuvalu

Kiribati

Nauru TongaMicronesia, Fed. Sts.

Solomon Islands

Marshall IslandsSamoa

Vanuatu

Palau

Fiji

-25

-20

-15

-10

-5

0

Percent


Up to 38 million more people could be pushed into poverty

Source: World Bank East Asia and Pacific Team for Statistical Development. Poverty estimates are based on growth forecasts, population projections, and historical growth elasticities of poverty. Note: $5.50/day (2011 PPP) indicates the poverty line for upper middle-income countries. The baseline and lower-case forecasts are as of September 17, 2020

-25.0

-8.1 -8.1

12.6

-30

-20

-10

0

10

20

pre-COVID post-COVID pre-COVID post-COVID

Change 2019-2020, million

16.9

20.7

China EAP excluding China


Some countries are likely to recover faster

A. China B. Vietnam

Source: World Bank staff

80

90

100

110

120

130

140

Q1

-19

Q2

-19

Q3

-19

Q4

-19

Q1

-20

Q2

-20

Q3

-20

Q4

-20

Q1

-21

Q2

-21

Q3

-21

Q4

-21

Q1

-22

Q2

-22

Q3

-22

Q4

-22

Baseline Jan GEP Low case

Index, 2018Q1=100

80

90

100

110

120

130

140

Q1-1

9

Q2

-19

Q3

-19

Q4

-19

Q1-2

0

Q2

-20

Q3

-20

Q4-2

0

Q1

-21

Q2

-21

Q3

-21

Q4-2

1

Q1

-22

Q2

-22

Q3-2

2

Q4

-22

Jan GEP Baseline Low case

Index, 2018Q1=100


Recovery is likely to be slower in other countries

A. Indonesia B. Philippines

Source: World Bank staff

80

90

100

110

120

130

140

Q1-1

9

Q2-1

9

Q3

-19

Q4-1

9

Q1-2

0

Q2-2

0

Q3-2

0

Q4-2

0

Q1-2

1

Q2

-21

Q3-2

1

Q4-2

1

Q1

-22

Q2-2

2

Q3-2

2

Q4-2

2


Index, 2018Q1=100

80

90

100

110

120

130

140

Q1

-19

Q2

-19

Q3

-19

Q4

-19

Q1

-20

Q2-2

0

Q3

-20

Q4

-20

Q1-2

1

Q2

-21

Q3

-21

Q4

-21

Q1-2

2

Q2

-22

Q3

-22

Q4-2

2


Index, 2018Q1=100


Country economic

growth

Public investment limited by fiscal constraints and

increased public debt

Human capital eroded by sickness, food

insecurity, job loss and education closures

Private investment inhibited by global

uncertainty and increased private

debt

Productivity hurt by firm closures, plus disruption in firm-

worker relationships, R&D, trade and GVCs

The COVID-19 shock will hurt inclusive growth


COVID-19 could reduce growth by 1 percentage point every year for a decade

A. China B. EAP excl. China

Source: Penn World Tables; World Bank Staff estimationsNotes: GDP-weighted averages of production function-based potential growth. TFP is total factor productivity growth

-2

0

2

4

6

8

10

2010-19 2020-30(Baseline)

2020-30(Pessimistic

scenario)

Percent Capital LaborTFP Human capitalPotential growth

0

1

2

3

4

5

2010-19 2020-30(Baseline)

2020-30(Pessimistic

scenario)

Percent Capital LaborTFP Human capitalPotential growth


An integrated view of policy

Building capacity for smart containment: test, trace and isolate; incentivize

development and prepare to distribute vaccine efficiently and fairly

Initiating fiscal reforms: widening the tax

base with more progressive taxation; less

wasteful spending on energy subsidies

Financial prudence: credible

commitments to transparency and to

early restoration of financial discipline

Widening social protection: to cover all

existing and new poor; investment in the

infrastructure of delivery

Support for firms: to prevent bankruptcies

and unemployment; without inhibiting the

efficient reallocation of workers and

resources to firms and sectors

Smart schooling: sanitary protocols,

social distance practices, student re-

enrollment

Deepen trade reform: in goods and

still-protected services sectors –

finance, transport, communications;

greater MFN openness in China.

Low revenue mobilization

A. General government revenue B. Fossil fuel subsidies

Source: Fiscal Monitor and Government Finance Statistics, IMF; International Center for Tax and Development and United Nations University World Institute for Development Economics Research (ICTD/UNU-WIDER) Government Revenue Dataset; World Bank staff calculations.Note: A. Averages are computed with current U.S. dollar GDP weight. B. Total revenue excludes social contributions and grants revenue. 2018 or latest available year.

15

20

25

30

35

40

199

4

199

6

199

8

200

0

200

2

200

4

200

6

200

8

201

0

201

2

201

4

201

6

201

8

202

0f

Percent of GDPChina

Developing EAP excl. China

EMDEs excl. EAP

Advanced economies

0

1

2

3

4

5

2010 2011 2012 2013 2014 2015 2016 2017

Pre-tax subsidies, percent of GDP

China Indonesia Malaysia Thailand Vietnam

and some wasteful spending

Go BackWorld Bank East Asia and Pacific Economic Update, October 2020

Sustaining and scaling-up social protection will not be easy

A. Average public spending on social

assistance pre-COVID

B. Cash transfers coverage and delivery capacity

Source: Panel A, World Bank staff calculations based on ASPIRE database data; Panel B, World Bank staff estimates.Note: Figures captures central government spending on social assistance. In contexts where social assistance spending by local governments is important, as in China, figures may underestimate pre-COVID spending levels as well as the magnitude of the response

Cambodia

Indonesia

Lao PDR

Malaysia

Myanmar

Singapore

Thailand

Vietnam

R² = 0.7615

R² = 0.047

0

20

40

60

80

100

120

50 100 150 200 250 300

Ca

sh

tra

nsfe

rs c

ove

rag

e

(Co

vid

-19

re

sp

on

se

)

JAM index (ID, mobile phones, bank accounts)

EAP Other regionsPercent

0

1

1

2

2

3

ECA AFR LAC MNA SAR EAP World

Percent of GDP

Go BackWorld Bank East Asia and Pacific Economic Update, October 2020

GVC relocation is sensitive to country conditions

Source: Freund et al. (2020)Note: The figures plot each country’s mean and median market share in country-products in which Japan had an average market share greater than 15 percent (right panel “High Share”) calculated over the 2004-2010 period Go Back


Services trade is changing and the region needs to change

Source: Mattoo and Taglioni 2020; Borchert et al. 2020

ARG

AUS

AUT

BELBGDBRA

CAN

CHL

COL

CRI

CZE

DEU

DNK

DOM

ECU

EGY

ESP

FIN

FRAGBR

GRC HUN

IND

IRLITA

JPN

KAZ

KEN

KOR

LKA

LTU

MEX

NGA

NLD

NZL

OMN

PAK

PAN

PER

POL

PRT

RUS

SWE

TUN

TUR

UKRURY

USA ZAF

CHN

IDN

MYS PHLTHA

VNM

20

30

40

50

60

70

0 5 10 15Serv

ices

Tra

de R

est

rictio

ns

Ind

ex

(ST

RI)

Average applied Most Favored Nation (MFN) tariff (percent)

Services trade growth and data intensity Protection of services and goods trade

Go Back

Construction

Maint. & Repair

Transport

Travel

Recreational

Other Business

Financial

Insurance

IP Charges

Telecom and ICT

-80

-60

-40

-20

0

20

40

60

80

100

0 2 4 6 8 10 12 14 16

CHN USA DEU JPN

Change in exports (percent)

Data density (as a share of total inputs)


presented by: aaditya mattoo chief economist east asia and...

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