Publication: Demand and Supply Dynamics in East Asia During the COVID-19 Recession
Date
2021-05-24
ISSN
Published
2021-05-24
Author(s)
Islamaj, Ergys
Ruch, Franz Ulrich
Vashakmadze, Eka
Abstract
The COVID-19 (coronavirus) pandemic has
devastated lives and damaged economies, requiring strong and
decisive policy responses from governments. Developing the
optimal short-term and long-term policy response to the
pandemic requires understanding the demand and supply
factors that drive economic growth. The appropriate policy
response will depend on the size and duration of demand and
supply shocks. This Research & Policy Brief provides a
decomposition of demand and supply dynamics at the
macroeconomic level for the large developing economies of
East Asia. The findings suggest that both demand and supply
shocks were important drivers of output fluctuations during
the first year of the pandemic. The demand shocks created an
environment of deficient demand - reflected in large
negative output gaps even after the unprecedented policy
response - which is expected to last through 2021. The
extant deficient demand is suggestive of continued need to
support the economic recovery. Its size should guide policy
makers in calibrating responses to ensure that recovery is
entrenched, and that short-term supply disruptions do not
lead to long-term declines in potential growth.
Citation
“Islamaj, Ergys; Ruch, Franz Ulrich; Vashakmadze, Eka. 2021. Demand and Supply Dynamics in East Asia During the COVID-19 Recession. Research and Policy Brief;No. 47. © World Bank, Malaysia. http://openknowledge.worldbank.org/handle/10986/35671 License: CC BY 3.0 IGO.”