DISCOVER THE REPORT
Part I. Recent developments
1. What is happening to the economy?
The multi-speed recovery in the region is now facing a set-back. China is projected to grow by 8.5 percent in 2021, while the rest of the region is projected to grow by 2.5 percent, about 2 percentage points slower compared to the last Update.
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2. What explains economic performance?
The heterogeneity of economic performance across EAP countries can be attributed to four factors: the scale of the COVID-19 shock, the measures by which the disease is being contained, the ability to take advantage of buoyant external conditions, and the capacity of the government to provide support.
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3. What are the near-term economic risks?
Continued deficiencies in vaccination, as well as the plateauing of other non-pharmaceutical interventions, could lead to recurrent waves of infections. Tightening monetary policy abroad could induce higher interest rates prematurely in the region. The highly leveraged corporate sector also poses a risk to financial stability. Further production interruptions in the region and beyond could disrupt global value chains.
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4. What are the policy priorities for recovery?
This section describes a set of reforms that are either essential for recovery, such as the containment of COVID-19, or may be easier to enact during the current crisis but would be implemented later. Examples of the latter include sustaining macroeconomic support by taxing incomes more fairly and harnessing international integration through phasing out investment restrictions.
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Analytical Boxes
Box I.1. What explains the slow pace of vaccination?
Box I.2. Vaccination and GDP growth
Box I.3. COVID-19 vaccination in EAP countries: Situation, constraints & strategies
Box I.4. COVID-19 adaptation
Box I.5. Globalization not localization key to COVID-19 recovery
Box I.6. How trade restrictions affect exports
Box I.7. Supply shortages
Box I.8. COVID-19 and inflation: Diverging trends
Box I.9. Fiscal rules in East Asia and Pacific
Box I.10. The fiscal implications of the two-pillar solution in East Asia and Pacific
Box I.11. Financial stability risks of COVID-19 forbearance measures
Box I.12. East Asia and Pacific insolvency frameworks
Box I.13. Financial sector reforms in Indonesia and the Philippines
Part II. Growth and inequality
1. The longer-term economic risks
COVID-19 threatens to create a combination without recent precedent: slow growth and increasing inequality. The result could be absolute deprivation to an extent that the region has not seen in the last two decades. However, bold reforms could offset some of the adverse impact.
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2. Firms and technology
This section focuses on the impact on firms, the key protagonists in the economy. It examines the impact on productivity, within the firm as well as the productivity impact of the reallocation of resources between firms within a sector and across sectors. Subsequently, it explores how patterns of technology adoption will affect future productivity growth, and the role policy is playing and should play in fostering growth.
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3. Households and inequality
This section illustrates how increased inequality today can worsen inequality tomorrow. Coping mechanisms, such as the distress sale of productive assets and increased debt, can hurt longer-term incomes. Also, food insecurity and limited access to interactive learning could lead to long-term losses in human capital and economic opportunity. Finally, the section examines how social protection spending has stepped into the breach left by fiscal policy.
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4. Policies for equitable growth
While COVID-19 has had adverse effects, it has also created opportunities. Furthermore, it is affecting the political economy of policymaking by changing the distribution of economic pain and incomes. It remains to be seen whether these political changes contribute to the policy reform that is needed to both remedy the scars and exploit the opportunities. This last section of the report provides some recommendations in light of the reforms discussed earlier.
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Analytical Boxes
Box II.A1. Investing in childcare for recovery and equitable growth
Box II.B1. Can cloud computing help close digital divides?
Box II.B2. Digital markets and the role of competition policy
Box II.B3. Investment reform in Indonesia and the Philippines
Box II.B4. Technology and inequality
Box II.C1. The effects of COVID-19 related mobilty restrictions in employment in Indonesia and the Philippines
Box II.C2. Cambodia's education system response to COVID-19
COVID-19–RELATED POLICY ISSUES EXAMINED IN RECENT ECONOMIC UPDATES
Previous updates have focused on a number of other policy issues, including:
(1) Vaccination to contain COVID-19;
(2) fiscal policy for relief, recovery, and growth;
(3) climate policy to build back better;
(4) smart containment of COVID-19, especially through non-pharmaceutical interventions like testing-tracing-isolation;
(5) smart schooling to prevent long-term losses of human capital, especially for the poor;
(6) social protection to help households smooth consumption and workers reintegrate as countries recover;
(7) support for firms to prevent bankruptcies and unemployment, without unduly inhibiting the efficient reallocation of workers and resources;
(8) financial sector policies to support relief and recovery without undermining financial stability; and
(9) trade reform, especially of still-protected services sectors—finance, transport, communications—to enhance firm productivity, avert pressures to protect other sectors, and equip people to take advantage of the digital opportunities whose emergence the pandemic is accelerating.