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Covid-19: Asia set for economic devastation

Pandemic will increase poverty and send unemployment soaring as people flock back to the countryside

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Covid-19: Asia set for economic devastation

Campaigners warn that many elephants working in Thailand's tourism sector may starve, be sold to zoos or shifted into the illegal logging trade as Covid-19 decimates visitor numbers. (Photo: Pixabay)

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As the region holds its collective breath wondering what the death toll and lasting injuries from Covid-19 will be, one thing is far more certain — the pandemic will wreak such economic devastation that it will make the Asian financial crisis look like a practice run.

Indeed, much of the commentary from economists is not just about a recession but about a global depression that will see double-digit unemployment, with many tens of millions of people thrown out of work, as economic growth moves into reverse.

And like all economic slumps, and this one is set to be the worst globally in 90 years, those first and most affected will be the poor who make up about 90 percent of the populations of most Asian countries — excluding wealthier nations like Japan, Taiwan, Singapore, Hong Kong and South Korea — as well as parts of China.

The global economy is expected to contract in 2020 by 3 percent, the worst recession since the Great Depression in a sudden global shutdown. Asia’s key trading partners are expected to contract sharply, including the United States by 6 percent and Europe by 6.6 percent.

The region’s growth engine China, the largest trading partner of every other country in the region, has already posted its worst economic performance since its reform and opening up began in about 1980 with a 6 percent contraction in the first quarter. China’s growth is projected to decline from 6.1 percent in 2019 to 1.2 percent in 2020.

The region’s No. 2 economy, Japan, is seeing an even worse situation. On March 27, the government downgraded its assessment of Japan's economy to "severe situation" due to the pandemic. Since then, the virus situation in the country has deteriorated, the Japan Times reported.

In its monthly report for March, Japan’s Cabinet Office did not use the expression "recovering" to describe the domestic economic situation for the first time in over six years.

"The Japanese economy is in a severe situation, extremely depressed by the novel coronavirus. We are aware that the moderate recovery trend has clearly turned around and [the economy] has entered a downward phase," said Yasutoshi Nishimura, minister in charge of economic and fiscal policy.

Chang Yong Rhee, director of the International Monetary Fund’s Asia and Pacific Department, described the situation as “a crisis like no other.”

“It is worse than the global financial crisis [of 2007-08] and Asia is not immune. While there is huge uncertainty about 2020 growth prospects, and even more so about the 2021 outlook, the impact of the coronavirus on the region will — across the board — be severe and unprecedented,” he said.

“This is a real economic shock and requires protecting people, jobs and industries directly. Growth in Asia is expected to stall at zero percent in 2020. This is the worst growth performance in almost 60 years, including during the global financial crisis (4.7 percent) and the Asian financial crisis (1.3 percent).”

The World Bank has forecast that 16 million people in Asia will be pushed into poverty, with more than one million new people in poverty in both China and Indonesia.

The region’s poorest nations such as Myanmar, Laos, Cambodia and Timor-Leste are also expected to feel the crunch.

At the sharp end will be domestic migrant workers who swarmed into capital cities and regional centers to work in lowly paid jobs with long hours. As those jobs evaporated amid lockdowns of various intensities in every country, they have been returning to their villages and farms to try and eke out an existence from subsistence agriculture, mainly on rice farms.

The World Bank has forecast that Covid-19 is likely to cause the first increase in global poverty since 1998, the year after the Asian financial crisis struck. The share of the world’s population living on less than US$1.90 per day is projected to increase from 8.2 percent in 2019 to 8.6 percent in 2020, or from 632 million people to 665 million people.

Stories recently swept across the world about the bleak fate of Thailand's elephants after the collapse of the country's tourism industry. But as tragic as this is, already the focus has shifted to Thai people queuing in the deserted tourist mecca of Pattaya for food. It’s a sight that is sure to become more commonplace in the months ahead

The governments of many Asian countries have boosted state spending in an attempt to at least soften the blow of contracting economies and widespread unemployment.

But additional action may be needed for emerging-market Asian economies that have limited space for increased spending in their budgets, the IMF suggested.

“If the situation deteriorates, many emerging economies may to be forced to adopt a “whatever it takes” approach despite their budget constraints and non-internationalized currencies. In many cases, they will face policy trade-offs.

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