Asia’s growth has reached a historic low in the past five decades of successful economic development, owing to the hit from the COVID-19 pandemic. The COVID-19 shock to developing countries is yet to pan out, with two-thirds of the world’s population at risk. The coronavirus has taken a toll on the global economy, with reports affirming the resultant recession. The World Bank reported the plunge in the global economy, being the worst recession since WWII. The World Bank also predicts that the global economy will shrink by 5.2%. The worst growth performance in Asia is set in action, which may lead to real economic shock and require protecting jobs, industries, and the people.
The historical economic fall is of substantial concern with values ranging from 3.5% in Korea to over 9% in Thailand, New Zealand, and Australia. Within the region, countries in the Pacific Island are most vulnerable due to a limitation in fiscal space. There are two input variables to the economic effects, including first, the drivers of growth in a select country or region, and second, the policy interventions. The ensuing economic effects include but are not limited to the costs of public finances, costs of inaction, and the destruction in productive capacity. The outbreak requires governments to move swiftly, expand capacities of the healthcare sector, and safeguard economic effects of containment policies.
The Groups Most Impacted by Economic Effects
The public. The public is at risk of COVID-19 and requires healthcare structures that are particularly weak in South-East Asian countries including Pakistan. Additionally, other diseases are not being given attention due to the burden the pandemic has placed on the health infrastructure. Other than the burden on health infrastructures, countries have started implementing work schemes to resume businesses in accordance to the standard operating procedures (SOPs).
Businesses. Economic measures are urgently needed to support small and medium-sized enterprises (SMEs). COVID-19 is by far the most devastating disease outbreak in the past 60 years to have affected revenues and liquidity of businesses, along with their abilities to comply with tax requirements. To protect further deterioration of the economies, it is crucial to develop and implement fiscal measures to support SMEs by crediting loans, guarantees, and tax deferrals, and assist workers through wage support.
Central banks. Asian central banks have started injecting sizable sums to support the frail economy, via quantitative easing and lending support to households and firms. The State Bank of Pakistan (SBP) started a subsidized Temporary Relief Facility (TERF) scheme to balance, modernize, and replace the impact of COVID-19 on the economy in March 17, 2020. The TERF scheme has received mixed responses by investors and business owners due to the lack of interest in obtaining loans for new projects. However, SBP has taken many measures to help the economic activity in Pakistan so far.
Double slowdown is defined by two factors that include the slowdown of the global economy, and the decrease in China’s performance during the current financial crises worldwide. For Asia to gain economic stability, preventative measures against COVID-19 including social distancing are required. China’s economic growth is projected to decline from 6.1% to 1.2% in 2020. This is in contrast with China’s trends of the global financial crisis, which remained close to 9.4% in 2009. It is expected that during these critical times, China will not majorly contribute to the Asian economy in 2020. That being said, the global economy as a whole is set to decline by 3%. Based on these metrics, the COVID-19 recession is the worst since the Great Depression. The sudden global shutdown is due to the synchronized economic contraction. The notable contributors to this double slowdown are Asia’s leading trading partners including Europe and the United States. China’s trading is projected to decline by 6.6% and 6% with Europe and the United States respectively. Considering the dynamicity in containment measures for countries in Asia and its trading partners, it is too naive to comment on prospects for 2021. However, if preventative measures are adequately implemented, Asia may be one of the first regions to gain control of the economic crisis. While some countries are imposing tighter lockdowns, others are struggling to control coronavirus cases. It boils down to the preventing the transmissibility of COVID-19 and actions taken by policymakers.
The Lightning Shock
While Russia is in a better position to deal with the economic aspects of the pandemic, some aspects apply region-wide. The COVID-19 crisis requires a coordinated policy response that accounts for economic contributing factors. First, countries need to support the health sector and contain the virus at the root level. It is essential that the countries re-prioritize their health budget, which allows for adequate containment and management of the disease outbreak. These steps are imperative as the COVID-19 pandemic is notably affecting economies globally. Second, financial markets and their operations are affected. If required, the macroprudential regulations must be laxed temporarily. Third, all external pressures must be contained. Countries like India, Pakistan, and Bangladesh must seek bilateral and multilateral swap lines and international financial support. Similarly, foreign-exchange market interventions and capital controls may be considered. Monetary policymakers must spend funds wisely, increase liquidity, and reduce the stress of SMEs, seen in Russia’s case.
Asia May Beat the Odds
The best way forward is targeted support combined with a recovery in the domestic demand stimulus that may help in reducing economic scars. Asian economies must take several initiatives in this direction and support health sectors with direct fiscal stimulus packages. Advanced Asian economies, such as China, are responding tactically during the financial crises. However, all Asian economies ought to devise plans to aid SMEs. Central banks must provide liquidity and reduce interest rates to help all impacted groups. Additional measures are necessary for the in South-East Asian economies that have limited healthcare budgets.
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