An Asian Development Bank (ADB) report has indicated that the coronavirus pandemic has pulled the developing economies in Asia into recession.
According to the ADB, it is the first time in 60 years that "developing Asia" has seen a regional recession and attributed this to the coronavirus pandemic. Developing Asia refers to 45 developing economies in the region.
Asian Development Outlook Update
In its update, the bank forecasts developing Asia's economy to contract by 0.7% in 2020. However, it also expects the region to bounce bank dramatically in 2021, with the economy expected to expand by 6.8% next year.
The Asian Development Outlook Update revealed that around 75% of the region's economies are expected to experience a slump this year and ADB has revised down its earlier projection of a 0.1% growth in the region's gross domestic product (GDP) for 2020.
The report highlighted that South Asia is likely to be the worst affected but China will be able to defy this trend, with its economy forecast to grow at 1.8% while India's economy is expected to contract by 9% this year.
Meanwhile, Southeast Asia is projected to experience a 3.8% decline in economic growth. On the other hand, Fiji's economy is expected to shrink by 19.5%, while the Maldives is expected to post a 20.5% decline.
In a statement, ADB chief economist Yasuyuki Sawada said: "Most economies in the Asia and Pacific region can expect difficult growth path for the rest of 2020." This is in line with the International Monetary Fund's (IMF) similar forecast earlier this year.
IMF outlook for the region
A few months ago, the IMF said the Asian economy will experience contraction and wane this year “for the first time in living memory.”
IMF believes that recovery may take years, adding that the Asian economy may have contraction by 1.6% this year. This is a downgrade from its last prediction of no growth in April.
During an interview with CNBC’s “Squawk Box Asia,” Changyong Rhee, director of the Asia and Pacific department at IMF, explained that the region remains in a better shape compared to other parts of the world. However, Asia’s growth becomes difficult due to a weaker global economy.
He noted that “Asia cannot be an exception” when the whole world is absorbing the economic damage brought by the coronavirus pandemic. The IMF last month reduced its forecasts for the global economy. It could decline by 4.9% this year before recuperating to increase by 5.4% next year, according to Rhee.
Moreover, Rhee pointed out that the economy of Asia would recover strongly to make a 6.6% growth next year. But he stressed the level of economic activity in the region being lower than what IMF had predicted before the pandemic.
Positive Outlook for 2021
Despite the dim forecasts for the region this year, it is expected to recover next year, with a growth of 6.8%.
ADB says that China's economy will recover by 7.7% in 2021 while India will experience an 8% growth next year. However, the bank argued that recovery may be hindered by a prolonged pandemic and tougher quarantine measures.
Sawada said: "The economic threat posed by the Covid-19 pandemic remains potent, as extended first waves or recurring outbreaks could prompt further containment measures."
