The World Bank Lowered its Growth Forecast for Most countries in East Asia and the Pacific

The semi-annual report shows that due to the deceleration of economic activity in the second quarter of 2021, the World Bank lowered its growth forecast for most countries in East Asia and the Pacific for this year. It is expected that the growth of other countries in the region.

The 4.4% of the country’s economy is lowered by nearly 2 percentage points, and there are significant differences between countries. Among them, the economic output of China, Indonesia, and Vietnam has exceeded the level before the epidemic, but countries such as Cambodia and Malaysia will not be able to achieve this until 2022, while the economic output of the Philippines, Thailand and many Pacific island countries will still be expected by 2023. Lower than the level before the epidemic.

As a result, employment has fallen, poverty persists, and inequality has risen in many ways. The semi-annual report shows that between 2019 and 2020, the employment rate in this region will drop by about 2 percentage points on average.

The World Bank stated that the economic recovery in East Asia and the Pacific has been affected by the spread of the delta mutant virus. The epidemic has prolonged the plight of businesses and households, and may lead to a slowdown in economic growth and increased inequality.

“The economic recovery of developing countries in East Asia and the Pacific is at risk of reversal.” said Manuela Firo, the World Bank’s East Asia and Pacific Vice President. “In 2020, when other regions are still struggling to cope, East Asia has contained After the epidemic, the rise in cases this year has weakened the growth prospects in 2021. However, East Asia has become stronger after the previous crises, and if the correct policies are adopted, it is possible to rise again.”

Countries with higher vaccination rates are less affected by the economy

The semi-annual report pointed out that the epidemic control measures have restricted economic activities. At the same time, vaccination helps reduce mortality and transmission rate, but the vaccination progress is slow.

Therefore, governments of various countries have to take control measures to prevent the spread of the virus. In general, the economies of countries with higher vaccination rates are less affected.

The World Bank pointed out that for every 10% increase in the vaccination rate, the quarterly gross domestic product (GDP) rises by 0.5%.

However, the constraints faced by countries in terms of vaccination are different. In countries such as Indonesia, the Philippines, and Vietnam, inadequate supply of vaccines has led to limited vaccination rates. Smaller, poorer countries, such as some Pacific island countries, have obtained vaccines through donations, but insufficient vaccine distribution infrastructure restricts vaccination. In addition, in some countries, as the level of vaccination increases, people’s hesitation on vaccination may become a restrictive factor.

However, the semi-annual report pointed out that there are currently two factors that have eased the impact of the current epidemic on the economy. First, the sensitivity of domestic economic activities to the number of infections has decreased. It is estimated that in May 2020, one new infection case per 1,000 people will reduce industrial output by 5%, but by June 2021, the impact will be negligible. Second, the active external economic environment supports exports from the region. Compared with the fourth quarter of 2019, China’s exports of goods increased by 28%, and other countries in the region increased by 21.5%.

The epidemic weakens the government’s ability to provide financial support

The semi-annual report pointed out that the protracted economic difficulties are weakening the ability of some governments in the region to provide economic support. Although the economy is still operating below its potential, financial support in the region has dropped from an average GDP of 7.7% in 2020 to 4.9% in 2021. In contrast, since consumer price increases in most countries are still within the central bank’s target range, countries have maintained supportive monetary policies and have not raised interest rates as in some other emerging markets.

The World Bank predicts that the epidemic may have a greater impact on the region. In the case of persistent inadequate vaccination and limited testing, coupled with the emergence of new variants of the virus, it may lead to repeated waves of infections, and the health system is still not prepared for the “long-term new crown”.

Especially, compared with domestic inflation, the region needs to worry about inflation pressure from abroad. Except for countries such as the Philippines, domestic inflationary pressures are very low because inflation expectations have been well anchored. However, the recovery of industrialized countries and the acceleration of inflation may trigger interest rate hikes, leading to premature financial tightening in East Asia and the Pacific, where recovery has been lagging behind.

The World Bank also pointed out that the rise in macro-financial risks requires caution. Among them, the record debt accumulation of enterprises and households and bank non-performing loans are worrisome.

However, the good news is that current vaccination trends will help the region transition to a relatively benign phase by June 2022.

France, Germany, Israel, the United Kingdom and other countries where vaccination rates are higher than 60% have reduced hospitalization and mortality. In East Asia and the Pacific, the vaccination rate of various countries is on the rise: at the end of June 2021, the proportion of the population receiving at least one dose of the vaccine averaged 18%, but by the end of August 2021 it had risen to 35%.

The World Bank predicts that in the first half of next year, vaccine coverage in many economies in the region is expected to reach 60%.

Although a coverage rate of 60% cannot completely eliminate infections or prevent the emergence of new mutant strains, countries need to achieve higher levels of coverage, but the experience of countries with higher vaccination rates shows that this will significantly reduce hospitalization and mortality, and make Economic activity was restored.

“Controlling the infection rate of new coronary pneumonia by speeding up vaccination and testing can help countries struggling to resume economic activity as early as the first half of 2022, and double the growth rate next year,” said the World Bank’s chief economics in East Asia and Pacific. Said the expert Aditya Matou. “But in the longer term, only by deepening reforms can we prevent the slowdown in growth and the increase in inequality. This combination of poverty-causing factors has never been seen in East Asia since this century.”

At the same time, the World Bank also pointed out in the report that East Asia needs to be improved in four aspects to deal with the long-term impact of the epidemic: solve the problem of vaccination hesitation and allocation capacity restrictions to prevent stagnation of vaccination coverage; strengthen testing, tracking and isolation To control the infection rate; increase regional vaccine production to reduce dependence on imported materials; strengthen the medical and health system to deal with the long-term existence of the new coronavirus. In all these areas, international assistance is needed to support national efforts, especially in countries with limited capacity.

The World Bank believes that in addition to curbing the epidemic, it is necessary to formulate a comprehensive strategy to promote inclusive economic growth.

The semi-annual report pointed out that accelerating the diffusion of technology may be a glimmer of hope in this crisis, which will help increase productivity, promote the democratization of education and institutional reforms. However, supporting reforms are necessary to equip enterprises with the skills to incorporate technology into the business they operate. They must be coordinated with the opening of trade and investment to strengthen competition policies that encourage enterprises to adopt new technologies.

Reviewer overview

he World Bank Lowered its Growth Forecast for Most countries in East Asia and the Pacific - /10

Summary

The semi-annual report shows that due to the deceleration of economic activity in the second quarter of 2021, the World Bank lowered its growth forecast for most countries in East Asia and the Pacific for this year. It is expected that the growth of other countries in the region.

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