South Asia may see worst economic performance in 40 years: WB report

NEW DELHI: As the global economy goes through an unprecedented tough phase amid the coronavirus crisis, a World Bank report on Sunday said that South Asia may witness its worst economic performance in the last 40 years.

The report also said that at least half of the countries in the region are likely to fall in deep recession.

“South Asia will likely experience the worst economic performance of the last 40 years. Because of the unparalleled uncertainty, this report presents a range forecast, estimating that regional growth will fall to a range between 1.8 and 2.8 per cent in 2020, down from 6.3 per cent projected six months ago.

The hardest hit is the Maldives where GDP is expected to decline by between 8.5 and 13 per cent this year, as tourism has dried up. Also, for Afghanistan, Pakistan, and Sri Lanka, the full range of their forecast GDP growth for this fiscal year is in negative territory.

In a worst-case scenario, the whole region would experience a contraction of GDP, it added.

The report noted that while normal downturns are caused by lack of effective demand, this crisis is caused by supply constraints. While typically manufacturing is the most cyclical part of the economy, this time service sectors are hardest hit, it added.

“While usually, GDP decelerates faster than consumption, as consumers smooth their spending over economic cycles, this time consumption is falling sharply. Moreover, supply disruptions and panic buying can jeopardize food security. The sudden disappearance of service sector jobs and the rise in food prices have created economic hardship, especially for people in the informal sector.”

It noted that policy makers in South Asia are dealing with a plethora of challenges. The first task is to prepare the, still underdeveloped, health-care system for the fight against COVID-19. Another immediate task is to secure access to food and basic needs to the most vulnerable people in society.

Similarly, it is important to secure other vital functions in the economy, such as payment systems and banking operations. This all has to be achieved in a deteriorating global environment, while dealing with fiscal stress and problems in financial markets that were caused by pre-existing vulnerabilities, it said.