1

UPDATEA Precarious Path to Recovery

Abdul AbiadDirector, Macroeconomic ResearchAsian Development Bank

Key messages

• Developing Asia will contract (-0.7%) this year, its first contraction in six decades. Growth will rebound to 6.8% in 2021, but this implies only a partial recovery.

• The downturn is broad-based—three-fourths of the region's economies are expected to contract this year. China is an important exception

• Risks to the outlook include the possibility of a prolonged pandemic; geopolitical tensions; and unclear long-term socio-economic impacts

2

The global pandemic persists, and is at varying stages in developing Asia

The virus continues to spread globally… …with South Asia being the epicenter in developing Asia.

Note: Latin American includes Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay, Venezuela.Sources: European Centre for Disease Prevention and Control, Johns Hopkins University, Telegraph UK, and Worldometer (accessed on 11 November 2020). 3

Sources: European Centre for Disease Prevention and Control, Johns Hopkins University, Telegraph UK, and Worldometer (accessed on 11 November 2020) .

100

1,000

10,000

100,000

1,000,000

Mar2020

Apr 2020 May2020

Jun 2020 Jul 2020 Aug 2020 Sep 2020 Oct 2020 Nov 2020

New cases, 7-day moving average (Log scale)

Developing Asia

Latin AmericaUnited States

Euro Area

0

1

10

100

1,000

10,000

100,000

Feb2020

Mar2020

Apr2020

May2020

Jun2020

Jul 2020 Aug2020

Sep2020

Oct2020

Nov2020

New cases, 7-day moving average (Log scale)

South Asia

Southeast Asia

Central Asia

East Asia

The Pacific

In response, containment measures of varying stringency have been imposed…

Stringent containment measures in Asia are now being eased…

4Note: The Government Response Stringency index is a composite measure of nine response indicators including school closures, workplace closures, and travel bans, rescaled to a value from 0 to 100, with 100 being the strictest response. Source: University of Oxford. (accessed 11 November 2020).

Central Asia

East Asia

South Asia

The Pacific

0

20

40

60

80

100

Jan2020

Feb2020

Mar2020

Apr2020

May2020

Jun2020

Jul2020

Aug2020

Sep2020

Oct2020

Southeast Asia

…with important variations across and within regions.

…which have restricted mobility and domestic activity.

5

Notes: Red dots are ADB developing member economies. Year-on-year GDP growth relative to GDP growth in Q4 of 2019.Sources: CEIC Data Company; Oxford University; and Google.

…which were associated with steep GDP growth declines.

HKG

ROKTAP

GEO

KAZ

KGZ

AFG

BAN

INDNEP

PAK

SRI

INOLAO

MAL

MYA

PHI

SINTHA

VIE

-60

-40

-20

0

20

0 20 40 60 80 100

Average stringency index

East AsiaCentral AsiaSouth AsiaSoutheast AsiaThe PacificLinear (Trend line)

Aver

age

mob

ility

out

side

resid

ence

, per

cent

age

chan

ge fr

om th

e ba

selin

e

PNG

FIJ

CAMTAJ

Outbreaks and containment led to mobility reductions…

Sources: Oxford University and Google.

GEO Q1HKG Q1

IND Q1INO Q1KGZ Q1MAL Q1

MON Q1

NEP Q1PHI Q1

SIN Q1KOR Q1

SRI Q1

TAP Q1

THA Q1

VIE Q1

GEO Q2

HKG Q2

IND Q2

INO Q2KGZ Q2

MAL Q2

MON Q2

PHI Q2

SIN Q2

KOR Q2

TAP Q2

THA Q2

VIE Q2

-40

-30

-20

-10

0

10

-80 -60 -40 -20 0 20

Average mobility (change from baseline, %)

GDP growth decline,percentage points

Trade plummeted, but has bottomed out—with Asia’s trade falling by less than global trade

-30

-20

-10

0

10

Jan-19 May-19 Sep-19 Jan-20 May-20

WorldG3Developing Asia

6

Notes: G3 refers to the weighted average of US, Japan, and Euro area. Developing Asia refers to the weighted average of PRC; Hong Kong, China; India; Indonesia; Republic of Korea; Malaysia; Pakistan; Philippines; Singapore; Taipei,China; Thailand; and Viet Nam.

Source: CPB Netherlands Bureau for Economic Policy Analysis. Available: https://www.cpb.nl/en/worldtrademonitor (accessed 26 August 2020).

Real exports% change, year on year

Real imports% change, year on year

-30

-20

-10

0

10

Jan-19 May-19 Sep-19 Jan-20 May-20

WorldG3Developing Asia

Exports of health supplies and electronics have helped Asia… …as has the smaller output decline in the PRC.

Growth slumped in the first half of 2020

Growth and demand-side contributions to growth, 2019 and 2020H1, selected economies

7Sources: Haver Analytics; CEIC Data Company (both accessed 13 November 2020); ADB estimates.

Note: Data for all economies (including India) are on calendar year basis, i.e., calendar year 2019 and calendar H1 2020 (March and June quarters of 2020). Details may not add up to total due to statistical discrepancy.

6.1

-1.6

4.9

-10.1

5.0

-1.3

4.3

-8.3

6.0

-9.3

2.4

-6.9

7.0

1.8

-1.2

-9.1

2.0

-0.7

0.7

-6.8

2.70.8

-18

-9

0

9

18

2019 H12020

2019 H12020

2019 H12020

2019 H12020

2019 H12020

2019 H12020

2019 H12020

2019 H12020

2019 H12020

2019 H12020

2019 H12020

PRC IND INO MAL PHI THA VIE HKG ROK SIN TAP

Consumption Investment Net exports GDP growth

Percentage points

NIEsASEAN-5PRC and India

Asian governments have stepped in with a wide-ranging crisis response

Policy packages in developing Asia

Note: Data as of 2 November 2020.Source: Compiled from ADB COVID-19 Policy Database, https://covid19policy.adb.org/ (accessed on 9 November 2020).

8

Government income support accounts for more than half of the region’s policy response.

7.9

9.3

5.8

4.1

6.5

2.9

13.6

2.4 2.81.8 1.6

0.2 0.1

13.5

3.3 3.6

1.0

3.9

1.5

0.0

4.7

1.2 1.0

3.8

0.1 0.30.7

2.0

0.2 0.2 0.1 0.0 0.0 0.00.7

0

3

6

9

12

15

Developing Asia East Asia Southeast Asia South Asia Central Asia The Pacific OECD advancedeconomies

Government support to income/revenueCredit creationLiquidity supportDirect long-term lendingEquity support

% of GDP

Regional GDP will contract this year, for the first time in nearly 6 decades…

Real GDP growth in developing Asia

Source: Asian Development Outlook database.9

Real GDP levels in developing Asia

100

110

120

130

140

2015 2016 2017 2018 2019 2020 2021

2015 real GDP = 100

Forecast

Pre-COVID trend

5.9

5.1

-0.7

6.8

2.2

6.2

0.1

6.2

-2

0

2

4

6

8

2018 2019 2020 2021

%

April 2020ADO

September 2020 ADO Update

Forecast

June 2020ADOS

After a 0.7% contraction this year, growth will resume in 2021… …but output will remain well below where it should be.

p = upgraded forecast, q = downgraded forecast, no sign = unchanged.

Source: Asian Development Outlook database. 10

2020 2021 2020 2021ADO ADOU ADO ADOU ADO ADOU ADO ADOU

East Asia 2.0 1.3 q 6.5 7.0 p South Asia 4.1 -6.8 q 6.0 7.1 pHong Kong, China -3.3 -6.5 q 3.5 5.1 p Bangladesh 7.8 5.2 q 8.0 6.8 qPRC 2.3 1.8 q 7.3 7.7 p India 4.0 -9.0 q 6.2 8.0 pRepublic of Korea 1.3 -1.0 q 2.3 3.3 p Pakistan 2.6 -0.4 q 3.2 2.0 qTaipei,China 1.8 0.8 q 2.5 3.5 p

Central Asia 2.8 -2.1 q 4.2 3.9 qSoutheast Asia 1.0 -3.8 q 4.7 5.5 p Azerbaijan 0.5 -4.3 q 1.5 1.2 qIndonesia 2.5 -1.0 q 5.0 5.3 p Kazakhstan 1.8 -3.2 q 3.6 2.8 qMalaysia 0.5 -5.0 q 5.5 6.5 pPhilippines 2.0 -7.3 q 6.5 6.5 The Pacific -0.3 -6.1 q 2.7 1.3 qSingapore 0.2 -6.2 q 2.0 4.5 p Fiji -4.9 -19.8 q 3.0 1.0 qThailand -4.8 -8.0 q 2.5 4.5 p Papua New Guinea 0.8 -2.9 q 2.8 2.5 qViet Nam 4.8 1.8 q 6.8 6.3 q

Developing Asia 2.2 -0.7 q 6.2 6.8 p Excluding NIEs 2.4 -0.5 q 6.7 7.2 p

…and the decline is broad-based, affecting most economies.

Risks remain tilted to the downside…

• The main risk is of a prolonged pandemic (extended first wave, or recurrent waves) which can stifle recovery, and which could trigger crises in some economies; ADO Update has quantitative downside scenario• Worsening geopolitical tensions are another risk—most notably intensified

US–PRC frictions over trade and technology• There is an upside risk from early vaccine arrival, but this is tempered by

potential for “vaccine nationalism”• Unclear long-term effects of pandemic—on growth potential, income

inequality (including through unemployment and the digital divide), and trade

11

12

…but developing Asia will still drive global growth post-COVID.

Source: Asian Development Outlook database; World Economic Outlook database, October 2020.

Contributions to global growth

4.8

2.53.0

4.3

5.44.9

5.5 5.5

3.0

-0.1

5.4

4.33.5 3.5 3.5 3.4 3.3

3.8 3.52.8

-4.4

5.24.2 3.8 3.6 3.5

-6

-4

-2

0

2

4

6

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Percentage points

Developing Asia United States Euro area

Japan Latin America and the Caribbean Middle East and North Africa

Sub-Saharan Africa Rest of the world

Appendix slides

13

COVID-19 will result in a loss of $6.1–$9.1 trillion (7.1%–10.5%) of global GDP vs. a no-COVID baseline.

Estimated global and regional losses due to COVID-19 (relative to a no-COVID counterfactual)

Source: Abiad et al., 2020, “The impact of COVID-19 on developing Asian economies: The role of outbreak severity, containment stringency, and mobility declines,” in COVID-19 in Developing Economies, CEPR e-book (https://voxeu.org/content/covid-19-developing-economies)

14

Shorter- containment Longer- containment Shorter- containment Longer- containmentWorld -7.1 -10.5 -6,065.7 -9,051.6Developing Asia -5.7 -8.5 -1,309.8 -1,955.4

Central Asia -8.6 -12.7 -31.1 -46.3East Asia -5.1 -7.6 -820.5 -1,227.2Southeast Asia -7.2 -10.6 -213.0 -315.4South Asia -7.0 -10.4 -243.6 -364.1The Pacific -4.8 -7.1 -1.7 -2.4

United States -8.0 -12.0 -1,646.6 -2,461.8Europe -9.1 -13.6 -1,715.1 -2,556.6Rest of the world -5.9 -8.8 -1,394.2 -2,077.7

GDP (%) GDP ($ billion)

https://voxeu.org/content/covid-19-developing-economies

The pandemic’s impact works through different channels across economies…

COVID-19’s impact on developing Asia GDP (relative to no-COVID counterfactual)

Source: Abiad et al., 2020, “The impact of COVID-19 on developing Asian economies: The role of outbreak severity, containment stringency, and mobility declines,” in COVID-19 in Developing Economies, CEPR e-book (https://voxeu.org/content/covid-19-developing-economies) 15

Note: Domestic demand declines are assumed only for economies with significant outbreaks (more than 1,000 cases). Does not account for any policy responses.AFG = Afghanistan, ARM = Armenia, AZE = Azerbaijan, BAN = Bangladesh, BHU = Bhutan, BRU = Brunei Darussalam, CAM = Cambodia, COO = Cook Islands, FSM = Federated States of Micronesia, FIJ = Fiji, GEO Georgia, HKG = Hong Kong, China, IND = India, INO = Indonesia, KAZ = Kazakhstan, KIR = Kiribati, KYR = Kyrgyz Republic, LAO = Lao People’s Dem. Rep., MAL = Malaysia, MLD = Maldives, MAR = Marshall Islands, MON = Mongolia, MYA = Myanmar, NAU = Nauru, NEP = Nepal, PAK = Pakistan, PAL = Palau, PNG = Papua New Guinea, PRC = People’s Republic of China, PHI = Philippines, KOR = Republic of Korea, SAM = Samoa, SIN = Singapore, SOL = Solomon Islands, SRI = Sri Lanka, TAP = Taipei,China, TAJ = Tajikistan, THA = Thailand, TIM = Timor-Leste, TON = Tonga, TUV = Tuvalu, UZB = Uzbekistan, VAN = Vanuatu, and VIE = Viet Nam.

-35

-30

-25

-20

-15

-10

-5

0

ARM

AZE

GEO

KAZ

KGZ

TAJ

TKM

UZB

PRC

HKG

ROK

MO

NTA

P

BRU

CAM

INO

LAO

MA

LM

YAPH

ISI

NTH

ATI

MVI

E

AFG

BAN

BHU

IND

MLD

NEP

PAK

SRI

COO

FIJ

FSM

KIR

RMI

NAU

PAL

PNG

SOL

TOM

TUV

VAN

SAM

Loss

(% o

f GDP

), re

lativ

e to

no-

COVI

D ba

selin

e

Global Spillovers (excluding tourism)

International tourism demand decline

Domestic demand decline

Central East Southeast South Pacific

https://voxeu.org/content/covid-19-developing-economies

…and will have differential impact across sectors.COVID-19’s sectoral impact (relative to no-COVID counterfactual)

Source: Abiad et al., 2020, “The impact of COVID-19 on developing Asian economies: The role of outbreak severity, containment stringency, and mobility declines,” in COVID-19 in Developing Economies, CEPR e-book (https://voxeu.org/content/covid-19-developing-economies) 16

Note: Sectoral impacts are available only for 24 developing Asian economies covered by the ADB Multi-Region Inout-Outout Tables (MRIOT)BAN = Bangladesh, BHU = Bhutan, BRU = Brunei Darussalam, CAM = Cambodia,, FIJ = Fiji, HKG = Hong Kong, China, IND = India, INO = Indonesia, KAZ = Kazakhstan,, KYR = Kyrgyz Republic, LAO = Lao People’s Dem. Rep., MAL = Malaysia, MLD = Maldives, MON = Mongolia, NEP = Nepal, PAK = Pakistan, PRC = People’s Republic of China, PHI = Philippines, KOR = Republic of Korea, SIN = Singapore, SRI = Sri Lanka, TAP = Taipei,China, THA = Thailand, and VIE = Viet Nam.

-35.0

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0KAZ KYR PRC HKG KOR MON TAP BRU CAM LAO INO MAL PHI SIN THA VIE BAN BHU IND MLD NEP PAK SRI FIJ

Loss

(% o

f GDP

), re

lativ

e to

no-

COVI

D ba

selin

e

Agriculture, Mining and Quarrying Business, Trade, Personal, and Public ServicesLight/Heavy Manufacturing, Utilities, and Construction Hotel and restaurants and Other Personal ServicesTransport services

Central East Southeast South Pacific

https://voxeu.org/content/covid-19-developing-economies

No end is yet in sight for the global tourism collapse…

Decline in tourist arrivals, selected developing Asian economies

For the 24 economies with tourist arrivals data available for August, the year-on-year decline in arrivals ranges from 89% to 100%. For Pacific economies, year-on-year declines in arrivals are between 97% and 100%.

Sources: CEIC Data Company; IMF Tourism Tracker; and country official sources (accessed 21 October 2020).

17

-89.0

-100

-80

-60

-40

-20

0

20

40

Jan 2019 Apr Jul Oct Jan 2020 Apr Jul Sep

% change year on year

India Indonesia Viet NamSri Lanka Taipei,China Rep. of KoreaSingapore Nepal Hong Kong, ChinaThailand Maldives GeorgiaCambodia

-97.0-100

-80

-60

-40

-20

0

20

40

60

80

100

Jan 2019 Apr Jul Oct Jan 2020 Apr Jul Aug

% change year on year

Vanuatu Palau FijiSamoa Cook Islands FSMPapua New Guinea Marshall Islands Solomon IslandsTonga Tuvalu

…and many travelers are deferring travel for a longer period.

18

Travel plans after bans are lifted

Source: IATA

22%

45%

23%

7%

3%

14%

47%

28%

8%

4%

12%

33%

36%

14%

5%

15%

33% 32%

15%

5%

Not wait at all Wait a month or two Wait six months or so Wait a year or so Not travel for the foreseeablefuture

February Survey April Survey(used in June estimates)

June Survey August Survey(used in the latest estimates)

52% of survey respondents plan to wait six months to a year or more after travel bans are lifted before traveling or have deferred travel indefinitely.

There has also been a shift toward domestic and short-haul travel.

Downside risk scenario: impact of prolonged global pandemic

19

PRC = People’s Republic of China, IND = India, FY = fiscal year, EA = emerging Asia. EA includes Hong Kong, China, Malaysia, Philippines, Republic of Korea, Singapore, Taipei,China, Thailand and Vietnam.Note: Data for India are in fiscal years ending 31 March of the next year.Source: ADB estimates using the Global Projection Model (GPM).

Effect on GDP (relative to ADOU baseline)• Prolonged pandemic with extended first

waves or recurrent waves• Renewed (but “smarter”) containment

measures in affected regions• Main impact is domestic, with some global

spillovers through trade and financial channels

• Growth in 2020 would be lower by 1.3pp in the PRC, 3.4pp in India, and 4.0pp in “other emerging Asia” bloc; with additional losses in 2021.

Containment measures are not all equally effective at stemming outbreak transmission

20

Estimated impact of various policy measures on outbreak transmission R(t)

Note: Lower-income DMCs are shown with darker shaded dots and labels. Sources: ADB projections using data from World Economic Outlook (WEO) October 2019, WEO April 2020, WEO October 2020 and Asian Development Outlook (ADO) Update – September 2020. 21

Many countries are moving from balanced budgets and low debt to sizeable deficits and higher debt.

AFGKIR

LAO

MLD

RMIFSM

SAMTAJ

TON

TUV AFG

KIR

LAO

MLD

RMI

FSM

SAM

TAJTON

TUVBAN

CAM

MYANEP

TIM

UZB

BHU

KGZ

PNG

SOL

VAN

BANCAMMYANEP

TIM

UZB

BHU

KGZ

PNG

SOL

VAN

0%

25%

50%

75%

100%

125%

150%

-50% -40% -30% -20% -10% 0% 10% 20% 30%

Publ

ic D

ebt (

% o

f GDP

)

Fiscal Balance (% of GDP)

20192021

Public Debt and Fiscal Balance

2019: 2 DMCs2021: 1 DMCs

2019: 9 DMCs2021: 20 DMCs

2019: 19 DMCs2021: 17 DMCs

2019: 10 DMCs2021: 2 DMCs

Public debt and fiscal balance

22

Sectoral indebtedness (% of GDP)

305%($187 tn)

322%($255 tn)

387%($158 tn)

383%($184 tn)

168%($28 tn)

220%($71 tn)

198%($18 tn)

265%($57 tn)

0

100

200

300

400

500

2009 2019 2009 2019 2009 2019 2009 2019

World Advanced economies Emerging marketeconomies

Developing Asia

Household debt Nonfinancial corporates Financial corporates Government

GDP=gross domestic product; tn = trillionNotes: Percentages refer to totals across sectors by economy grouping, which is based on Institute of International Finance definitions. Developing Asia is a subset of Emerging market economies and is comprised of Hong Kong, China; India; Indonesia; Republic of Korea; Malaysia; Pakistan; People’s Republic of China; Philippines; Singapore; and Thailand. Numbers in parentheses refer to total debt levels.Source: Institute of International Finance Global Debt Database (accessed 12 June 2020).

Debt had already been on the rise in the decade preceding COVID-19…

23

GDP=gross domestic product; HKG=Hong Kong, China; IND=India; INO=Indonesia; KOR=Republic of Korea; MAL=Malaysia; PAK=Pakistan; PHI=Philippines; PRC=People’s Republic of China; SIN=Singapore; THA=Thailand; tn = trillionNotes: Percentages refer to totals across sectors. Numbers in parentheses refer to total debt levels.Source: Institute of International Finance Global Debt Database (accessed 12 June 2020).

370%($0.8 tn)

519%($1.9 tn)

137%($1.8 tn)

129%($3.6 tn)

65%($0.4 tn)

79%($0.9 tn)

276%($2.9 tn)

330%($5.2 tn)

202%($0.4 tn)

221%($0.8 tn)

65%($0.1 tn)

94%($0.3 tn)

93%($0.2 tn)

99%($0.4 tn)

209%($10.6 tn)

300%($41.5 tn)

428%($0.9 tn)

480%($1.8 tn)

162%($0.5 tn)

188%($1.0 tn)

0

100

200

300

400

500

600

2009 2019 2009 2019 2009 2019 2009 2019 2009 2019 2009 2019 2009 2019 2009 2019 2009 2019 2009 2019

HKG IND INO KOR MAL PAK PHI PRC SIN THA

Household debt Nonfinancial corporates Financial corporates Government

…with wide variation across developing Asian economies and sectors.

Sectoral indebtedness (% of GDP)

Asia’s trade has been stagnant since 2018, when the US-China trade war began

Source: CPB Netherlands Bureau for Economic Policy Analysis World Trade Monitor.

24

Developing Asia's Trade, 2000-2020

0

20

40

60

80

100

120

140

160

Jan-

00Ju

l-00

Jan-

01Ju

l-01

Jan-

02Ju

l-02

Jan-

03Ju

l-03

Jan-

04Ju

l-04

Jan-

05Ju

l-05

Jan-

06Ju

l-06

Jan-

07Ju

l-07

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10Ju

l-10

Jan-

11Ju

l-11

Jan-

12Ju

l-12

Jan-

13Ju

l-13

Jan-

14Ju

l-14

Jan-

15Ju

l-15

Jan-

16Ju

l-16

Jan-

17Ju

l-17

Jan-

18Ju

l-18

Jan-

19Ju

l-19

Jan-

20Ju

l-20

Inde

x, 2

010=

100

2001-2008: China's WTO accession and the rise of global value chains

2009-2010: The GFC and the great trade collapse and recovery

2011-2017: continued post-GFC trade expansion

2018-2020: trade wars and COVID-19