The measures taken by governments in South Asia to curtail the movement of people will lead to a demand-side shock to private consumption
The Economist Intelligence Unit (EIU) has revised down Bangladesh's economic growth to less than half of what it had predicted earlier due to the rampage of the coronavirus.
The EIU, which is the world leader in global business intelligence, said preventive measures taken domestically and globally to stem the spread of the coronavirus pandemic will weigh on the country's economic growth in the current fiscal year and the next year as well.
"Consequently, we will be revising down our real GDP growth forecast for 2019/20 to less than 4 percent, from 7.5 percent currently," it said.
This steep fall in GDP will be a big blow to the country, which has been growing at an average of over 6.5 percent for the past decade. Last year's growth was 8.15 percent, the highest in the Asia-Pacific region.
The EIU made the report on the South Asian economies after cases of the coronavirus was recorded in all countries of the region. Dense living conditions, low hygiene awareness, and overburdened healthcare systems make the region vulnerable to the worst effects of an outbreak.
Chronic underinvestment in healthcare infrastructure and a low number of doctors and hospital beds in relation to the population mean that health systems will not be able to cope with the further toll, exacerbating the spread of the virus and the death rate.
Also, preventive measures to stem the spread of the outbreak are set to exact a heavy economic toll in South Asia. The measures taken by governments to curtail the movement of people will lead to a demand-side shock to private consumption – the primary driver of economic growth in many South Asian economies. Similar measures around the world will also constrain demand for exports, it said.
In the light of this situation, the EIU forecasts India's economy to dip down to 2 percent this year from 6 percent projected earlier, Sri Lanka 1 percent from the earlier 3 percent. Pakistan's economy is forecasted to grow at 2.2 percent only.
The Economist Intelligence Unit also expects that these countries will provide fiscal and monetary stimulus, although the scope of such measures will vary.
For example: India and Bangladesh, given their stronger economic positions, will be able to provide relatively more; meanwhile, measures in Pakistan and Sri Lanka will be more limited.
Central banks and governments have responded by providing a stimulus in the face of the economic costs of the pandemic. However, the EIU believes the measures will not come close to offsetting the loss of economic activity.
The Indian, Pakistani, Bangladeshi and Sri Lankan central banks have cut their policy rates and announced other measures to ensure liquidity in the financial sector, while the Indian, Pakistani and Bangladeshi governments have announced fiscal stimulus plans, primarily to support low-income households.
India has announced a stimulus package worth $24 billion, equivalent to 0.7 percent of its GDP, while Pakistan offered $7.1 billion or 2.6 percent of GDP and Bangladesh only $0.6 billion or 0.2 percent of GDP.
"As the crisis worsens, we expect further fiscal and monetary stimulus to be provided by nearly all South Asian countries. Fiscal stimulus will continue to focus primarily on tax relief and support for low-income households through direct or indirect cash transfers, while monetary stimulus will focus on deferring loan payments and ensuring adequate liquidity in the financial market."