The distribution of COVID-19 vaccines throughout 2021 raised optimism of a return to normal, but the emergence of the Omicron variant has quickly forced a reassessment. In the latest episode of ADB Insight, ADB Chief Economist Albert Park discusses the ways the pandemic will impact economic growth in Asia and the Pacific in 2022 and what other key issues are facing policymakers and their economies.

Transcript

Nisha Pillai: Hello and welcome to ADB Insight, I'm Nisha Pillai. In 2022, the Asia Pacific region faces another challenging year for economic growth. The region rebounded solidly last year following the downturn of 2020. But the emergence of the Omicron variant of COVID-19 suggests the global pandemic is far from over. It continues to be the biggest risk to ADB's economic forecast for the region this year.

To discuss the economic outlook for the region in 2022, I'm joined now by ADB Chief Economist Albert Park. Albert, welcome. Thank you for joining us.

First off, can you summarize for us how you see the economic outlook for the Asia Pacific region this year? 

Albert Park: Thank you, Nisha. Our forecast for developing Asia is that economic growth will be 5.3% in 2022. We consider this to be a steady recovery from the pandemic and is supported by progress in vaccination rates and control of the COVID-19 disease. But it masks quite a bit of different experiences, whether it be different regions of Asia, different sectors of the economy or different groups of people in different countries. So, for example, some regions like South Asia, Southeast Asia, and the Pacific islands will reach a GDP level, which is still about 10 percentage points below where we would have expected them to be, if there had been no pandemic. We know that exports have recovered fairly robustly since the pandemic began. But, that places that rely on tourism have suffered quite a bit and continue to struggle. We also know that many poor have been particularly affected and continue to have difficulty finding jobs and maintaining their income and expenditure levels through the pandemic period. 

Nisha Pillai: Now you mentioned COVID-19, Albert. With variants like Omicron spreading like wildfire as we've seen, it sounds like COVID-19 is going to weigh heavily on economic prospects again this year. 

Albert Park: Yes, COVID-19 remains by far the biggest downside risk factor for economies in Asia. On the one hand, progress in vaccination rates—so right now, about 60% of people in developing Asia have been fully vaccinated—that is contributing to recovery, as well as a lot of strong government efforts to try to stop the spread of the disease. However, we know that Omicron is difficult to control, and many Asian countries have not yet experienced the big spikes of Omicron that we have seen in other parts of the world, and probably they will need to confront that. We're hoping, of course, that the Omicron episodes will be more short lived than previous episodes of the pandemic, given the nature of the variant. And we also expect that more countries have figured out ways to live with COVID-19, especially with higher vaccination rates. So, the severity of lockdown measures won't be as much as in the past. However, there are still risks. For instance, People’s Republic of China maintains a very clear no-COVID-19 policy, and if COVID-19 spreads in the PRC, then it could mean that they impose widespread lockdowns that could be very disruptive to their economy, which of course, would filter to other parts of the region. 

Nisha Pillai: Now, there are two big global issues causing concern, Albert. The first I'd like to ask your thoughts on is inflation, the inflationary pressures that are building up. How do you see that impacting the region in 2022?

Albert Park: Well, unlike most parts of the world, developing Asia has actually seen relatively little inflationary pressure. And part of that is because food price inflation, although it has spiked up during parts of 2021, is not as bad as in other parts of the world. But it's also because the recovery in terms of employment and overall demand has not been as robust in Asia, partly because in the U.S. and in many European countries, there was a huge, huge government stimulus. And while Asian countries have also extended more spending and eased monetary policy to try to spur the economy during the recovery, the degree just simply hasn't been the same. So, we still see a more slackness in the labor market, which is perhaps putting less pressure on prices. 

Nisha Pillai: And the other big issue is global supply chain bottlenecks. Do you see those being resolved any time soon for the Asia Pacific region?

Albert Park: Well, just like inflation and relatedly, supply chain bottlenecks have not been so severe in Asia compared to other parts of the world. Part of the reason is that in Asia, there's been a bit better control of the pandemic, which has led to less disruption. But also, many of the manufacturers in Asia are kind of located in more upper links of the supply chain. And so, if you think about being at the very end of the supply chain, any disruption to any of the links above you is going to accumulate and create disruption. And if you're at the upper parts of the supply chain, it'll be less disruptive. And that's part of it as well. In addition, the logistics efficiency in Asia, especially in People’s Republic of China, ports, etcetera, has been pretty high, which has also helped to minimize disruption.

Nisha Pillai: So, from what you're saying, it does seem like there may be some grounds for optimism as we look ahead this year?

Albert Park: Well, we think that despite all of the challenges, Asia still remains a dynamic center of the global economy, and one indication of that is we see a pretty strong resiliency in economic integration in trade and investment flows through the pandemic. So, Asia is still an attractive destination for FDI. We're very hopeful that RCEP, the Regional Comprehensive Economic Partnership Agreement, will be an additional kind of boost to economic activity in the region going forward. 

Nisha Pillai: And finally, what do you see as the economic levers that policymakers should be using to ensure not just short-term growth through the pandemic, but also longer-term sustainable growth as we begin to emerge from the pandemic? 

Albert Park: Well, governments in the region are very challenged to balance a number of competing short-term considerations with long-term considerations in thinking about how to manage their economies. So, for instance, in the short term, obviously, there's still an enormous need to support populations that have been adversely affected by the pandemic, especially with the rise of the omicron variant. At the same time, they have to keep an eye on inflation, which is spiking in some countries, for instance in Central Asia, but not so broadly. But they certainly have to keep an eye on that. But then broadly moving forward, it's hard to continue spending money year after year. It puts budgetary pressure on the government and forces the government to increase their debt levels, which could lead to a kind of riskiness or fragility for future growth. So, they have to balance that concern. At the same time, we're very much concerned that some of the impacts of the pandemic on lost schooling by children and extended unemployment spells for young workers could have really long-term effects if the government is not active in supporting ways to reduce that learning loss and help in the recovery both in the labor market and in the education sector. So, all of those considerations need to be balanced and each country will be in a slightly different position as they do so. 

Nisha Pillai: Albert, thank you for your insight, it's good to have you with us.

Albert Park: Thanks, Nisha.

Nisha Pillai: And thank you indeed to all of you for joining us for this episode of ADB Insight. Till the next one for me, Nisha Pillai. Goodbye.   

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