Coronavirus could push 160 million more into poverty across Asia, ADB warns
- Overall gross domestic product growth for developing Asia will contract by 0.7 per cent this year, marking its first negative economic growth since 1962
- The Asian Development Bank cuts China growth forecast to 1.8 per cent this year from 2.3 per cent previously, although it will rebound 7.7 per cent in 2021
The coronavirus pandemic and the containment measures required to combat it will push millions of people in Asia into absolute poverty and widen inequality within industries and countries in the Asia-Pacific region, according to the Asian Development Bank (ADB).
Asia has seen a dramatic decline in poverty as the proportion of the region’s gross domestic product (GDP) rose to one third of the global economy from a quarter over the past 15 years.
“However, because of Covid-19, economic growth became negative so income became smaller, and poor people particularly encountered this income decline,” said ADB chief economist Yasuyuki Sawada.
“We are likely to observe a huge number of people falling below the poverty line according to our assessment, [with] more than 160 million people in the region to fall below the poverty line.”
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Sawada’s calculation is based on the international poverty threshold of US$3.2 per person per day.
Without the coronavirus pandemic, the number of poor people in developing Asia would have continued to decline in line with experience over the past two decades.
The number of people in poverty, defined as living on no more than US$1.90 per day, would have declined to 114 million by the end of 2020, while using US$3.20 as the poverty line, the number would have fallen to 734 million.
But the coronavirus reversed this trend, with the ADB now estimating the number of poor people in the region is likely to rise instead to 192 million by the end of 2020 using the US$1.90 poverty line, or to 896 million using the US$3.20 poverty line.
This means, depending on the poverty definition, an additional 78 million or 162 million people, reversing the poverty reduction achieved over the past three to four years.
Poorer segments of the society, including the self employed in the informal economy, are more vulnerable to the pandemic because they cannot earn income by working from home as white collar employees are able to do, Sawada added.
Additionally, micro and small-sized firms and industries, particularly in South Asian countries, are also being disproportionately affected because liquidity constraints may prevent them from continuing to operate during the lockdown period or when their operations have been suspended, Sawada explained.
“So inevitably [these businesses] have to fire their employees,” Sawada said. “Poor workers, informal workers and small business are affected [the most],” Sawada said.
Economies across developing Asia will contract this year for the first time in nearly six decades, with about three quarters of the region’s economies expected to post negative growth in 2020.
Next year’s recovery will be below pre-Covid-19 projections, suggesting an L-shaped recovery, Sawada said.
The ADB forecasts that overall gross domestic product growth for developing Asia will contract by 0.7 per cent this year, marking its first negative economic growth since 1962. Growth is forecast to rebound to 6.8 per cent in 2021, but this will still leave GDP next year substantially below expectations before Covid-19.
Thus, the region’s growth will experience a weak L-shaped recovery rather than a strong V-shaped rebound, the ADB said.
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The picture across the region is mixed, with the path and speed of the economic recovery depending on the success in controlling the pandemic. In particular, the two largest economies in the region are diverging as the start of the recovery in China contrasts with continued fragility in India.
China contained its domestic outbreak relatively rapidly, while the outbreak in India has intensified since April, spreading rapidly from cities to rural areas.
India’s GDP, though, is forecast to fall by 9 per cent in 2020 and rise 8 per cent in 2021.
A prolonged Covid-19 pandemic remains the biggest downside risk to the region’s growth outlook this year and next year. Other downside risks come from geopolitical tensions, including an escalation of the trade and technology conflict between the United States and China, as well as financial vulnerabilities that could be exacerbated by a prolonged pandemic.
Moreover, China has met only 48 per cent of phase one deal purchase targets since July and a second phase agreement on structural reforms seems unlikely to take place this year.
“So US-China friction not only on trade but also on technology seems to be a bit worrisome,” Sawada said. “This is another element tilting risks to the downside for Asian-Pacific economies.”