FICCI-KAS Interactive Session with Dr Yasuyuki Sawada, Chief Economist, Asian Development Bank

Dr Sawada is the chief spokesperson for ADB on economic and development trends and serves as Director General of the Economic Research and Regional Cooperation Department, which publishes ADB’s flagship knowledge products. Prior to assuming his current post, Dr. Sawada was a professor at the University of Tokyo’s Graduate School of Economics.

The session was conducted in the backdrop of the Covid-19 pandemic, which has left a deep impact on economies across the world. The near total lockdown across countries, closing of international borders and restricted mobility have brought economic activity to a standstill. While countries across the world have now started to open up in a calibrated manner, yet there exists considerable uncertainty on the economic outlook and how the recovery process will shape up going ahead given the trade-off between lives and livelihoods.

At the session,  Dr. Sawada shared his insights on the theme ‘Impact of Covid-19 on the Asia-Pacific region : Policy responses and prospects’ focussing on three aspects:

• Overview of the forces now reshaping Asian Economies
• Outlook for the Region & India and
• Expanded Scenarios in the Post Covid World & Asia.

Key Takeaways from the Discussions

• Asian Development Bank, in its latest Economic Outlook released in June, 2020, built projections based on two scenarios – (i) outlook under a basic containment of 3 months and (ii) outlook under a longer containment of 6 months. The Bank estimated a total loss of USD 6-9 trillion to the global economy, with the losses to Developing Asia amounting to USD 1.3-2 trillion. It was pointed out that stringency pertaining to lockdowns was much higher in South Asia and the mobility impact was much greater in the region. In fact, countries across the world have been caught in a similar trade-off between imposing containments and facing economic losses.

• However, the concept of ‘Smart Lockdowns’ can help us minimise the risks from these trade-offs. Countries like South Korea and Taipei, China have successfully minimized the economic losses through smart containment measures. Both countries applied a digital based lockdown –using digital platforms and apps to keep the activities going. Digital technology was also massively applied to the basic principles of testing, tracing and isolating. Various important lessons can be learnt from these two countries. Nonetheless, this approach requires availability of high-quality ICT infrastructure (Information and Communication Technology) and its easy accessibility.

• The Covid -19 pandemic is likely to have a grave impact on Poverty and Employment as well. According to estimates by the Asian Development Bank, at a global level 158.1-242.1 million jobs are expected to be lost and the number for Asia is likely to be 109.1-166.7 million. Further, about 70% of the expected job losses are likely to be concentrated in Asia Pacific region since a majority (about 60%) of employment in the region is in the informal sector. Moreover, in South Asia the concentration of informal jobs is about 90%.

• Pre Covid-19, a continuous decline in the poverty rates was being noted. However, the pandemic has had a serious negative impact on incomes. The current crisis is expected to halt the gains made in the declining poverty levels. As per estimates about 140 million additional people are likely to be pushed into poverty due to the Covid-19 pandemic.

• India has become a centre for the Covid-19 pandemic and the country has witnessed a rapid surge in new cases. In Developing Asia, domestic cases have occurred in 21 out of the 46 developing member countries and South Asia has been reporting the maximum number of cases.

• In fact, all countries have been negatively impacted to some extent especially the tourism dependent economies. For instance, Fiji is likely to witness (-) 50 percent growth in 2020. Further, South East Asian countries like Singapore, Honk Kong – which are dependent on external demand, are also likely to witness significant moderation.

• As for India, the Bank has forecast a growth of (-) 4.0 percent for 2020 and 5.0 percent for 2021. The phased re-opening of the economy since May, 2020 has led to nascent recovery in some of the high frequency indicators like farm tractor sales, vehicle registrations etc. However, the risks remain tilted to the downside.

• To counter the economic impact of the pandemic, the Developing Asian countries have announced stimulus package to the tune of USD 3.4 trillion – which is about 14.1 percent of the regional GDP. Most of the countries have focused on providing direct income support to households through transfers in kind – which is positive. Policies have softened the immediate impact significantly. Also, the reproduction rate in the region has come down and is under control.

• Developing Asia is expected to record 0.1 percent growth in 2020- the lowest since 1961. The growth is expected to recover to 6.2 percent in 2021. However, according to the Bank the expected recovery in 2021 is not likely to be enough to push the Asian economies to a pre-covid level growth trajectory.  A V-shaped recovery cannot be envisioned immediately. The situation would largely depend on vaccine development and how widely it is distributed. If the optimistic scenario of vaccine announcement plays out then a V-shaped recovery would be possible.

• The possible elements of the expanded scenario of the current pandemic include five aspects. One, recurrent waves of outbreaks, as in case of Spanish Flu and MERs. Two, health systems being over-whelmed. Three, sovereign debt crises and a financial crisis. Four, worsened inequality and social unrest due to polarization, inadequate support. Five, post outbreak world doesn’t return to the old normal in medium/long term. It remains critical to carefully examine the counteracts for these concerns.

• Also, a changing pattern has been noted in Asia’s trade especially, in light of the US-China trade war. Nonetheless, the region is still expected to drive growth in the post covid-19 world. Next year onwards, Asia will play a very important role towards rebound in global economy.

• Moving towards the post-outbreak ‘new normal’ should entail a ‘building back better’ approach by : (i) reaffirming the importance of open economic systems; (ii) aiming at building back greener; (iii) addressing inequality created by digitization (iv) strengthening complementarities among market, government and community against different (compounded) disasters.

• A  European perspective was also provided with regard to the pandemic. It was highlighted that default response to the pandemic throughout the world has seen nationalistic tendencies – which was also witnessed in the Euro area besides, of course, adoption of quarantining measures and lockdowns. Disruptions were noted in regular supply chains, trade and movement of people which led to an establishment of new set of rules as countries had to compete against each other for limited resources (especially medical equipment etc).

• While some grave situations emerged initially, the European leaders have pledged a historic deal recently which is expected to mend the fences between Covid-19 stricken members. There was an urgent need to come together and find solutions for the current crisis and we will have to wait and see if the recent stimulus package provides suitable answers for the Euro area.

• The Indian side has been comprehensive in its strategy, in the sense, it reached out to its immediate neighbourhood from the very beginning providing support and assistance - recognising the importance of strategizing as a region to have maximum policy impact. Health and safety of an entire region implies our own health and safety.
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• India is committed to playing a major role in providing solutions and bouncing back to its earlier growth trajectory. The country is strengthened not only by the sheer size of its market but by its capabilities as well. India has been focusing increasingly on digitization, system designs, manufacturing for future etc with dedicated focus on ensuring inclusiveness through  adoption of new age technologies for growth and progress. In the current situation, the key to normalisation is announcement of a vaccine, but the outlook over next six to twelve months is positive.

• There is more room left for another fiscal impetus by the Indian government and we might soon hear of another fiscal stimulus package from India. This may help us put on par with the packages being announced by the East Asian countries. As of now the size of fiscal commitment made by South Asia is relatively smaller – about  77% of the stimulus amount announced by the East Asian region.

• It was also mentioned that Asian Development Bank is playing a critical role in extending support to its member countries in this time of crises. A special Covid Response Scheme has been initiated under which budgetary support is being offered to members, which includes India. Also, technical, knowledge and policy assistance is being provided through the Bank’s academic resources. Private sector is also being offered concessional support.

• Tourism sector has been most adversely hit which includes the impact on aviation and hospitality sectors. Tourist arrivals have declined by 90-100% given the stringent restraints imposed on cross border movement. As health risks continue to remain, normalcy in the sector will take much longer to come back. A survey conducted by International Air Transport Association (IATA) reveals that majority of the respondents are unlikely to undertake travel for the next 6-12 months. Nonetheless, countries are adopting strategies to revive and support the sector. For instance, Japan is looking at promoting domestic tourism and the government is offering incentives by meeting 20-30% of the expenses to encourage travellers. Moreover, digital means can be leveraged to showcase UNESCO Heritage sites electronically.