The Russian invasion of Ukraine has further dampened the economic outlook for developing countries in East Asia and the Pacific, which means less economic growth and greater poverty in the region this year, the World Bank has warned. .
The Ukraine factor added to the existing risks the region – which is home to 2.1 billion people and stretches from China to Papua New Guinea – has faced in recent years. They included the ongoing Covid-19 pandemic, the financial squeeze in the United States, and the resurgence of the pandemic amid China’s zero Covid policies.
China, which accounts for 86% of regional production, is expected to increase by 5% in 2022, 0.4 percentage points lower than the World Bank’s October estimate. But in the Bank’s bearish scenario, the world’s second largest economy could grow by only 4%.
The report covers the economies of 23 developing countries in East Asia and the Pacific region, but not those of developed countries such as Australia, New Zealand, Singapore or Japan.
Even before the war in Ukraine, Beijing had faced Covid shocks to its economy and had addressed existing vulnerabilities in its real estate sector.
At last month’s annual policy meetings, the ruling Communist Party in China set its GDP growth target at “around 5.5%” this year. In recent weeks, however, as the war in Ukraine has continued to rage and Omicron has brought the country’s largest city, Shanghai, to the blockade, economists have expressed concern.
In its latest regional economic update, entitled Braving the Storms, the World Bank said that while commodity producers and fiscally prudent countries may be better equipped to withstand external shocks, the repercussions of recent events will dampen the growth prospects of most part of the region, which is expected to grow by 5%, down from the October estimate of 5.4%.
But that’s just the most likely scenario, the Bank said. Growth could slow by as much as 4% if global conditions worsen and national policy responses are weaker, she added. Countries such as Indonesia, Vietnam, Malaysia and the Philippines are estimated to grow by more than 5%, but by a few percentage points less in the bearish scenario.
“The question is what governments can do,” said Aaditya Mattoo, the World Bank’s chief economist for East Asia and the Pacific region. “These shocks add to existing challenges facing the region’s economies and the scope of fiscal and monetary policies is also shrinking.”
Mattoo fears that such volatilities will have a real impact on millions of households in the region. About 8 million people in the region fell into the poverty line during the pandemic and will see real incomes fall further as prices rise and purchasing power decline.
The World Bank report warns: “Governments in debt, which have seen their debt as a share of GDP increase by 10 percentage points since 2019, will struggle to provide economic support. Rising inflation, at least one percentage point above previous expectations due to the oil price shock alone, will reduce room for monetary easing. “
The succession of shocks means that people’s growing economic pain will face the shrinking financial capacity of their governments, Mattoo said. “A combination of fiscal, financial and trade reforms could mitigate risks, revive growth and reduce poverty.”
They include: 1) strengthening the efficiency of fiscal policy for recovery and growth; 2) strengthen macroprudential policies to mitigate the risks deriving from the global financial squeeze; 3) reform trade policies relating to goods and, in particular, in the sectors of services that are still protected, to benefit from the changing landscape of global trade; and 4) reform policy by encouraging the spread of technology.