Updated 2 May to incorporate full year data for 2021.
A previous post analyzing the economics of the pandemic for 2020 documented widely divergent experiences in Asia with respect to case numbers, mobility loss, and export impact, and showed all three of these factors to be systematically related to GDP growth. A follow-up post on fiscal policy found that those economies with ample fiscal space used it to ramp up spending, and a post on monetary policy showed central bank balance sheets expanding under supportive global conditions. In this post, we revisit the analytics using data for 2021.
In recent years, emerging market countries—in particular, those in Asia—have been among the global economy’s star performers. Even during bad times, such as during the Global Financial Crisis, Asian EMs have seen their economies hold up better than most others.
For much of the COVID crisis, that story held true. Many Asian economies, such as Vietnam, Singapore and Taiwan, seemed to have COVID under control, while Asian EMs appeared to have significant monetary and fiscal policy room to help address any economic impact of the crisis. In April 2021, the IMF’s projections for growth in the region were extremely bullish, with a recovery to 8.5 percent growth in emerging Asia this year and 6.0 percent in 2022. Two months later, expected growth had been downgraded, to a still-healthy 6.3 percent and 5.2 percent over the same two years (see Table). The ADB was even more optimistic in its July 2021 projections, pointing to growth of 7.2 percent and 5.4 percent this year and next.
When the last global crisis hit in 2008-09, the major economies of East Asia, but for one, had ample fiscal space to respond, and took advantage of that. This time around, the positioning is more mixed and the threat potentially much greater.
In Asia, the shock of the Great Financial Crisis (GFC) was inflicted mainly through export loss and capital flight. Domestic financial systems remained sound and productive capacity intact. A quick shot of fiscal stimulus was just the remedy to tide an economy over until global trade rebounded and financial capital returned. Use of such a strategy shows up in Figure 1 as a sharp increase in the debt-to-GDP ratio in 2009 for Malaysia, China, Vietnam, Thailand, Korea, and Taiwan, with the ratio then declining or stable in 2010. Two countries – the Philippines and Indonesia – saw no increase in their debt ratios in 2009, riding out the crisis without recourse to fiscal stimulus.
Small businesses in Bangladesh are usually started out of necessity and operate informally. They generally lack access to bank credit, possess little capital, and sell their output locally. The very nature of these small businesses makes them extremely vulnerable to the shock of COVID-19.