East Asia’s Economies Face Slowing Growth and Rising Inequality, World Bank Warns

East Asia’s Economies Face Slowing Growth and Rising Inequality, World Bank Warns

As the Delta variant hits Asia, the bank expects the gap between the region and the West to widen

Most countries in East Asia face major setbacks in recovering from the coronavirus, the World Bank said, adding to concerns that the resurgent pandemic will widen the economic divide between the region and the Western world.

With the notable exception of China, economic activity across the region has sputtered since the second quarter amid outbreaks of the Delta variant of the coronavirus and relatively slow vaccine rollouts, leading some multilateral institutions to cut growth forecasts for most economies in the region and warn about longer-term problems such as rising inequality.

Overall, the economy of East Asia and the Pacific is on track to expand by 7.5% this year, according to forecasts released Tuesday by the World Bank Group, up from its April forecast of 7.4%. But that improvement is all China, now expected to grow 8.5%, up from 8.1%. The outlook for the rest of the region worsened, with the bank now forecasting growth of just 2.5% this year, down from 4.4% in April.

“The economic recovery of developing East Asia and Pacific faces a reversal of fortune,” said Manuela Ferro, an economist at the Washington, D.C.-based institution.

The U.S. economy is expected to outpace the world as a whole by expanding 6% this year, the Organization for Economic Cooperation and Development forecast last week.

In Asia, meanwhile, the pandemic’s persistence threatens to deliver “an impoverishing double whammy of slow growth and increasing inequality,” the World Bank warned, calling it the first time the region has faced such an outlook since the turn of the century. The bank sees 24 million more people below the poverty line in Asia this year than it projected earlier.

Last week, the Manila-based Asia Development Bank cut its growth outlook for developing Asia to 7.1%, from 7.3% in April, in large part because Covid-19 outbreaks led to major lockdowns that slowed manufacturing activity in Southeast Asia, a regional export hub. The ADB now forecasts 3.1% growth this year for Southeast Asia, where countries have struggled to ramp up vaccinations, down from 4.4% previously.

Myanmar, Malaysia and Cambodia are among the countries that have imposed lockdowns and social-distancing rules in recent months as Covid-19 infections surged. That has exacerbated global supply-chain disruptions, delaying production of finished goods from clothes to cars as well as commodities, including coffee and palm oil.

Vaccination rates have picked up in Asia, though they still trail the West. As of the end of August, less than one-third of the region’s population had been fully vaccinated, compared with 52% in the U.S. and 58% in the European Union, according to the ADB.

The World Bank predicts that most Asian countries will push vaccination rates up to 60% by the first half of 2022, which it says will allow for a fuller resumption of economic activity—though it won’t be enough to eliminate infections.

Moreover, Asia’s advantage in the global goods trade—a bright spot for the region for much of the past year—is expected to fade.

Export demand for a range of goods, such as machinery and consumer electronics, has slipped as companies and individuals from richer Western countries shift their spending patterns. Supply capacity in those markets has also started to normalize, while higher shipping costs risk further eroding appetite for imports from Asia.

“Global goods import demand peaked in the second quarter of 2020 and regional exports face stronger competitions as other regions recover,” says the World Bank report.

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