South Asia faces worst economic performance in 40 years

15 April 2020

Failing supply chains, a lack of demand for garments and disruption to tourism result in a “perfect storm” in South Asia due to the coronavirus pandemic, a report has found. 

In a report, the World Bank said the region is facing its worst economic performance in 40 years that could see its battle against poverty set back by decades.

Lockdowns in most countries have frozen large parts of the domestic economy. As a result, the World Bank cut its growth forecast for the region in 2020 to as low as 1.8%, from its original projection of 6.3%. This would see at least half of the countries in the region falling into “deep recession”.

In the worst-hit country, the Maldives, the collapse of tourism will result in gross domestic output contracting by up to 13%. Afghanistan could shrink by up to 5.9% and Pakistan by up to 2.2%.

India is likely to see growth of between 1.5% and 2.8% in its current financial year, down from an expected 4.8% to 5.0% for the year just ended, the bank predicted.

The report said: “While normal downturns are caused by lack of effective demand, this crisis is caused by supply constraints. Typically, manufacturing is the most cyclical part of the economy, this time service sectors are hardest hit.”

Supply chain disruptions have already caused significant hardship to economies such as Bangladesh, which faced a choice between shutting down garment factories to protect workers or keeping them running to prevent the economy’s main industry from coming to a halt.

While the Bangladesh Garment Manufacturers and Exporters Association (BMGEA) received positive responses to its appeal to international buyers to honour recent orders, a shortage of raw material due to supply disruptions and a lockdown led to a temporary closure of most factories from 7 April.

The bank analysis found a shock to supply due to bottlenecks in global value chains was one of the main channels affecting the region’s economies.

“Interruptions of energy products, chemicals and pharmaceuticals, and transport equipment mostly originate from India and have the effect of reducing output in the whole South Asian economy,” the report said.

Textile and garments exports and business process outsourcing exports from India are especially vulnerable, and India could lose international clients from competitors in other regions.

The World Bank advised measures including temporary work programmes for migrant workers, debt relief for business and individuals and cutting red tape on imports and exports of essential goods.

Governments in the region have also been advised to urgently pursue "innovative policies" to jumpstart economies”.

"Failure to do so can lead to long-term growth disruptions and reverse hard-won progress in reducing poverty," the World Bank said.

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