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China’s economic growth will fall to zero this year and six developing countries in the region will slump into a deep recession, according to new figures released by the World Bank.
The Bank's “lower case” forecast has Indonesia, Thailand, Malaysia, East Timor, Papua New Guinea and the Philippines all tipping into recession due to the coronavirus outbreak.
The report has China’s economy growing at just 0.1 per cent in 2020, down from 6.1 per cent last year. The “baseline forecast” is for a more upbeat 2.5 per cent growth.
Even if the more optimistic forecast is met, Beijing is on track for its lowest growth rate since 1976, when the radical and moderate factions of the Communist Party were fighting for control following the death of Mao Zedong.
The forecasts suggest China’s economic performance will also be worse than the 1989 downturn, which followed the massacre of protesters around Tiananmen Square.
“It remains to be seen whether the [Chinese] government can switch on economic activity as abruptly as it was switched off,” the Bank says.
“Indirect estimates, such as pollution indicators, show that activity is increasing only gradually in China.”
Its year to year growth forecasts for China in the first quarter range from -7.5 per cent to -0.6 per cent.
The bank’s forecast is broadly in line with market economists like Nomura, which sees China’s economy growing at around 1 per cent this year.
While China may narrowly avoid recession, other developing economies in the region will not be as fortunate, leading to a sharp spike in poverty rates.
Under the Bank’s “lower-case scenario”, poverty is forecast to increase by about 11 million people in the 12 developing economies across East Asia and the Pacific.
“[This] reveal[s] the magnitude of potential economic distress and the need for urgent action,” the report says.
It said the hardest hit will include households in Vietnam reliant on manufacturing jobs and those in the Pacific Islands where tourism has ground to a halt.
Overall, Thailand is forecast to be the worst affected country in the region, due to the slump in tourism, manufacturing and the ongoing drought.
The Bank is forecasting a deep recession and for the economy to shrink by 5 per cent this year under its “lower case” and 3 per cent as its “baseline”.
The oil dependent economies of Malaysia (-4.6 per cent), Timor Leste (-4 per cent) and Papua New Guinea (-0.9 per cent) are also headed into a recession.
To avoid the worst effects of the virus the World Bank says trade routes must remain open to support the loosening of fiscal and monetary policy by national governments.
“World Trade Organisation (WTO) members—or at least the G20 countries—must agree not to restrict exports of coronavirus-related medical products. Consuming countries could do their part too by liberalising imports,” it says.
The baseline scenario is for a severe slowdown followed by a strong recovery. The lower case models a deeper contraction followed by a sluggish recovery.
SOURCE: FINANCIAL REVIEW/PACNEWS
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