China, Vietnam Lead Three-Speed Asian Recovery, World Bank Says

A three-speed recovery is taking hold across East Asia and the Pacific, with China and Vietnam already beating their pre-pandemic levels of economic growth while other countries could take years more to heal, according to World Bank projections.

The developing countries of the region, excluding China, are set to expand 4.4% after contracting 3.7% last year, the World Bank said in a release Friday. Underneath those regional figures is a broad disparity, with Pacific Island nations set to grow just 1% after contracting 11.3% last year, and many recovering but still significantly behind their pre-pandemic levels of growth.

China, Vietnam Lead Three-Speed Asian Recovery, World Bank Says

Inequality in access and efficacy of vaccines underlies much of the unevenness, Aaditya Mattoo, the World Bank’s chief economist for the East Asia and Pacific region, said in an interview ahead of the report’s release.

“The rollout numbers we have seen recently are very low,” especially in the Philippines and Indonesia, which have a problem with “vaccine hesitancy” and distribution capacity, he said.

On the upside, economies in the region -- much like those across emerging markets and the developing world -- are set to see a boost from spillover effects after the U.S. recently passed a $1.9 trillion stimulus package.

Stimulus Effect

Echoing other forecasts around the U.S. lift to global growth, the World Bank says the stimulus could add 1 percentage point on average to the growth of countries in the region, mainly through trade and investment. Export-oriented economies in Asia, particularly Cambodia, Malaysia, Thailand and Vietnam, are set to benefit most, the World Bank estimates.

Positive spillover effects from healing in advanced economies could be imperiled by governments’ moves to tighten financial conditions, making the less trade-heavy economies even more vulnerable, the report showed.

Here are more takeaways from the World Bank’s report and Mattoo’s analysis:

  • Policy space will remain an issue for some economies, for different reasons: Vietnam struggles with very high private debt, Laos and Mongolia have large external financing needs, and Indonesia “doesn’t have any real vulnerability, but the bizarre thing is how little revenue they raise,” Mattoo said.
  • Economies’ recoveries are judged on their relative management of Covid, ability to take advantage of booming global trade, and capacity to provide fiscal and monetary stimulus; on these metrics, the Philippines has performed particularly poorly among big economies in the region.
  • Many economies are undertaking helpful green initiatives, though the challenge is to execute these without hurting economic growth or poorer residents, Mattoo said.
  • Turmoil in the wake of the military coup in Myanmar and resulting street protests prompted the World Bank to project a 10% contraction in that economy this year, after 1.7% growth in 2020. The bank currently offers no further annual projections for Myanmar.

©2021 Bloomberg L.P.

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