Impact of COVID in developing Asian economies

- Summarised from Asian Development Bank's authors A. Abiad, M. Arao, E. Lavina, R. Platitas, J. Pagaduan, C. Jabagat's chapter in COVID in developing economies

This study uses ADB's Multi-Regio input-output tables (MRIOT) to evaluate the impact of domestic and external shocks created by COVID. The study uses country-specific information on the outbreak severity, stringency measures and affected mobility to estimate domestic shocks.

Impact of stringent measures and declined mobility on economic activity

- The stringency measures and the declination of mobility for South Asian economies (average stringency 88 and mobility declination of -52%) are relatively large as compared to other parts of Asia (esp East Asia with average stringency 57 and elimination of -8% due to high testing and contact tracing) and World (average stringency ~70 and mobility declination of ~-35%). The larger impact in South Asia is mainly due to India's aggressive lockdown

- Plotting the average Q1-2020 stringency and mobility indices against GDP, a strong correlation was found, that is, stringent measures or larger mobility declines meant a larger drop in GDP

- Most economies, however, were hit majorly post Q1-2020 and so a metric is required to assess the impact on GDP over a longer period - say entire 2020. To do this, the study used the difference in the growth forecast of consumption and investment for 2020 in May 2020 and December 2019 by Consensus Forecast Reports. Plots and regressions showed a significant relationship between the forecast revisions and severity, mobility and stringency

-Regression results showed that 10 percentage point (pp) increase in stringency is related to a downward revision of consumption growth forecast by 0.6-0.7pp and investment growth forecast by 1.2-1.3 pp. Similarly, a 10 pp decrease in mobility is related to 0.5 pp in consumption growth and 1.1 pp of investment growth

Tourism Collapse

- The study assumes a complete global collapse for travel and slow recovery to normalcy once lockdown are eased. The April tourism arrivals data from Fiji, Georgia, Japan, Nepal and Vietnam showed 94% year-on-year decline. Further, the April-IATA surveyed commission showed that only 14% of the correspondents were willing to travel upon lift of lockdown but 75% preferred to wait between 1-6 months before travelling

- Two scenarios (short and long) were considered. Combining the scenarios with the global travel restrictions and IATA-survey results about slow rebound, the 'effective no-travel period' were calculated

-- The scenario in which a travel ban exists for three months the period comes to about 6.7 months, that is, a 56% decline in tourism receipts

-- The scenario in which a travel ban exists for six months the period comes to about 9.7 months, that is, an 81% decline in tourism receipts

Trade and production linkage spillovers

- Estimated domestic and external demand shocks are fed into ADB's MRIOT

- The impact of global spillovers depends on the degree of openness to international trade. More open economies would face greater spillovers due to weak global demand under both short and long containment scenarios. Regression finds that the degree of openness explains 68% of the variation in the magnitude of spillovers.

Global and regional impact

- Global impact is estimated to be 7.1%-10.5% of global GDP. Around 22% of this global loss comes from developing Asian economies

- As a share of GDP, losses to developing Asian economies are smaller than in the US or Europe

- East Asian and Pacific sub-region economies are expected to hit relatively less hard

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