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ADB publishes brief on potential financial effects of COVID-19

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ADB publishes brief on potential financial effects of COVID-19

As of March 6, according to the Asian Development Bank, the ongoing COVID-19 (coronavirus) outbreak affects the People’s Republic of Chia and other developing Asian economies through numerous channels, including sharp declines in domestic demand, lower tourism and business travel, trade and production linkages, supply disruptions and health effects.

What could be the magnitude of the economic impact? ADB says this “will depend on how the outbreak evolves, which remains highly uncertain.” ADB explored a range of scenarios, which suggests a global impact of $77 billion to $347 billion, or 0.1% to 0.4% of global gross domestic product (GDP), with a moderate case estimate of $156 billion or 0.2% of global GDP. Two-thirds of the impact falls on the PRC.

To put issues in perspective, ADB report authors said the fatality rate for COVID-19 is 1% to 3.4%, compared with only 0.05% for seasonal flu but for other coronaviruses such as SARS (Severe Acute Respiratory Syndrome) it is 10% and for MERS (Middle East Respiratory Syndrome) is 34.3%. As of the end of February 2020, COVID-19 had infected 85,403 people in 55 countries, with 2,924 global deaths. But the PRC still accounts for the vast majority: 97% of total fatalities and 93% of total cases.

ADB says there are several channels through which the outbreak will affect economic activity in the PRC, the rest of developing Asia and the world:

  • Sharp but temporary decline in domestic consumption in the PRC and other outbreak-affected economics, and possibly investment if the outbreak affects views on future business activity
  • Declines in tourism and business travel
  • Spillovers of weaker demand to other sectors and economies through trade and production linkages
  • Supply-side disruptions to production and trade
  • Effects on health such as increased disease and mortality, as well as shifts in healthcare spending

ADB offers three scenarios:

  • Best-case scenario, meaning the PRC outbreak is contained relatively quickly, with travel bans and precautionary behavior abating in two months (measured from late January), plus moderate and short-lived decline in the PRC’s consumption growth of 0.7% for the year relative to a no-outbreak scenario
  • Moderate scenario, with a more widespread and longer-lasting outbreak, with travel bans and precautionary behavior abating only after three months and a 2% decline in the PRC’s consumption growth for the year
  • Worst-case scenario, with a more protracted PRC outbreak, with precautionary behaviors and restrictive policies remaining in place for six months and both consumption and investment growth down by 2% relative to a no-outbreak scenario

ADB says it is supporting its members in responding to the COVID-19 outbreak through finance, knowledge and partnerships.

According to its website, ADB is committed to achieving a prosperous, inclusive, resilient and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Recently, in its support of hydropower, ADB and the government of the Kyrgyz Republic signed a $100 million financing package to modernize aging equipment and improve power generation at the 180-MW Uch-Kurgan hydropower plant.