World Bank East Asia and Pacific Economic Update, April 2020

Abstract

The COVID-19 virus that triggered a supply shock in China has now caused a global shock. Developing economies in East Asia and the Pacific (EAP), recovering from a trade war and struggling with a viral disease, now face the prospect of a global financial shock and recession. Significant economic pain seems unavoidable in all countries and the risk of financial instability is high, especially in countries with excessive private indebtedness. Several economies are expected to contract in 2020, which will lead to an increase in the poverty rate. Households linked to affected sectors will suffer more. To deal with this crisis, countries need to act fast and decisively to contain the spread of infection, while expanding capacity both to treat people and to test and trace infections. Fiscal measures should provide social protection to cushion against shocks, especially for the most economically vulnerable. Firms will need liquidity injections to help them stay in business and maintain beneficial links to Global Value Chains. The optimal economic policy response will change over time and depend on the precise nature and evolution of the shock. Given the unprecedented nature of the economic shock to each country, and the fact that it is also affecting all other countries in the region and beyond, an exceptional policy response is needed.