Coronavirus outbreak taking huge toll on China’s economy, World Bank warns

The economic fallout from the coronavirus pandemic could cause China’s growth to stop while plunging 11 million people in East Asia into poverty, the World Bank warned on Monday.

The pandemic is causing “an unprecedented global shock, which could stunt growth and worsen poverty in the region,” said Aaditya Mattoo, chief economist of the World Bank for East Asia and the Pacific.

Even in the best of cases, the region will experience a sharp decline in its growth, the expansion of China slowing to 2.3% against 6.1% in 2019, according to a report on the impact of the pandemic on the region. .

While two-fifths of the world’s population is experiencing a form of foreclosure that has caused business to close and transportation to slow down in an attempt to contain the virus, the country of origin of the outbreak may escape recession but will suffer. nevertheless a marked slowdown.

Just two months ago, World Bank economists predicted that China would grow 5.9% this year, which would have been its worst performance since 1990.

Today, the world’s second largest economy is facing more dire prospects, as evidenced by the record contraction in manufacturing activity in February and industrial production which fell for the first time in 30 years.

The East Asia and Pacific region, excluding China, could see growth slow to 1.3% in the baseline scenario or contract 2.8% in the most severe scenario pessimistic, against 5.8% last year, according to the report.

“The pandemic is deeply affecting the economies of the region, but the depth and duration of the shock is unusually uncertain,” the report said, noting that the region was already disrupted by the trade conflict with the United States.

“The containment of the pandemic would allow a recovery, but the risk of lasting financial tensions is high even beyond 2020,” warned the World Bank. “The most vulnerable countries are those that are heavily dependent on trade, tourism and commodities; who are heavily indebted; and who depend on volatile financial flows.”

Worsening poverty

Even in the best of cases, marked by a sharp slowdown followed by a strong recovery, 24 million fewer people in the region will escape poverty, according to the report.

But an additional 11 million people could fall into poverty in a more negative outlook, where there is a severe economic contraction followed by a slow recovery.

Mattoo said the 17 countries in the region, key to global value chains and accounting for 70 percent of world trade “have all been affected” and are now among the highest cases in the world of COVID-19 cases.

“In this interdependent world where our economic destinies are linked, there will be mutual amplification, because the shock simultaneously affects all these important countries,” he told reporters.

“This makes it particularly costly in economic terms.”

The World Bank has called for strong action, the priority being first on containment but also on measures to cushion the shock of households in the event of a loss of wages.

Mattoo said it was not too late to follow Korea’s lead to speed up testing and containment so that economies could start to return to normal more quickly.

“It’s not rocket science. With help, even the poorest countries can do it.”