WASHINGTON, Sept. 27, 2021—The East Asia and Pacific region’s recovery has been undermined by the spread of the COVID-19 Delta variant, prolonging
the distress for firms and households, likely slowing economic growth and increasing inequality, the World Bank said on
Monday.
Economic activity began to slow down in the second quarter of 2021, and growth forecasts have been downgraded for most
countries in the region, according to the World Bank’s East Asia and Pacific Fall 2021 Economic Update. While China’s economy is projected to expand by 8.5%, the rest of the region is forecast to grow at 2.5%, nearly 2
percentage points less than forecast in April 2021. Employment rates and labor force participation have dropped, and as many as 24 million people will not be able to escape
poverty in 2021.
“The economic recovery of developing East Asia and Pacific faces a reversal of fortune,” said World Bank Vice President for East Asia and Pacific, Manuela Ferro. “Whereas in 2020 the region contained COVID-19 while other regions of the world struggled, the rise in COVID-19 cases
in 2021 has decreased growth prospects for 2021. However, the region has emerged stronger from crises before and with
the right policies could do so again.”
The damage done by the resurgence and persistence of COVID-19 is likely to hurt growth and increase inequality over the
longer-term, the Update finds. The failure of otherwise viable firms is leading to the loss of valuable intangible
assets, while surviving companies are deferring productive investments. Smaller companies have been hit the hardest.
While most firms have faced difficulty, larger firms are likely to see a smaller decline in sales and more likely to
adopt sophisticated technologies and receive government support.
Households have suffered, especially poorer ones, which have been more likely to lose income, suffer greater food
insecurity, have children not engaged in learning, and make distress sales of scarce assets. The resulting increase in
stunting, erosion of human capital, and loss of productive assets will hurt the future earnings of these households.
Increased inequality between firms could also increase inequality between workers.
“Accelerated vaccination and testing to control COVID-19 infections could revive economic activity in struggling
countries as early as the first half of 2022, and double their growth rate next year,” said East Asia and Pacific Chief Economist, Aaditya Mattoo. “But in the longer term, only deeper reforms can prevent slower growth and increasing inequality, an impoverishing
combination the region has not seen this century.”
The report estimates that most countries in the region, including Indonesia and the Philippines, can vaccinate more than
60 percent of their populations by the first half of 2022. While that would not eliminate infections, it would
significantly reduce mortality, allowing a resumption of economic activity.
However, the region will need to make a serious effort on four fronts to deal with long COVID: addressing vaccine
hesitancy and limitations in distribution capacity to prevent plateauing coverage; enhancing testing, tracing, and
isolation to control infections; increasing regional production of vaccines to reduce dependence on imported supplies;
and strengthening health systems to deal with the prolonged presence of the disease. International assistance is needed
to support national efforts in all these areas, especially in countries with limited capacity.
Beyond containing COVID-19, a comprehensive strategy will be needed to boost growth and ensure it is inclusive. The
report identifies accelerated technology diffusion as a possible silver lining of the crisis that could boost
productivity, democratize education, and transform state institutions. However, complementary reforms are necessary.
Equipping firms with the skills to embed technology in their business must be accompanied by openness to trade and
investment and by competition policies that strengthen incentives for firms to adopt new technology. Implementing
long-delayed reforms in education to improve teaching quality and curriculum relevance could ensure wider access to the
benefits of new learning technologies.