ISLAMABAD: In its supplement to the Asian Development Outlook, the Asian Development Bank (ADB) said on Thursday that economic activity in South Asia has started to normalise from the third quarter, and Pakistan’s economy is recovering, particularly in manufacturing and construction.

The earlier South Asia forecast for 6.8 per cent contraction is upgraded to 6.1pc in line with an improved projection for India, as recovery accelerates, from 9pc contraction to 8pc. Growth will return in 2021, at 7.2pc in South Asia and 8pc in India, according to the supplement.

In Afghanistan, agriculture is robust, but the outlook is adversely affected by a new Covid-19 wave and intensified conflict even as peace talks continue. Economic activity in Bangladesh has recovered more strongly than expected with both exports and remittances growing in recent months but threatened by external risks as Covid-19 outbreaks renew in major export destinations.

In Bhutan, the impact of Covid-19 is now expected to be greater than projected in the update after a nationwide lockdown in August and September halted all economic activity. Maldives restored more international flights in October, but travel demand remains weak as restrictions are reinstated in major European markets, hampering tourism recovery.

South Asia outlook improves as contraction forecast revised down to 6.1pc

Nepal has substantially eased restrictions since September, but a persistent rise in Covid-19 infections is holding back demand.

In Sri Lanka, economic recovery was under way in the third quarter, but a rapidly expanding outbreak from early October brought localised lockdowns and restrictions, their economic effects compounded by resurgent outbreaks in Sri Lanka’s main export and tourist markets. These factors are expected to worsen contraction in 2020.

Developing Asia is now forecast to contract by 0.4pc in 2020, less than the 0.7pc contraction envisaged in the Asian Development Outlook 2020 Update in September. Growth will rebound to 6.8pc in 2021, but prospects diverge within the region, it says.

A prolonged pandemic is still the main risk to the outlook, as it can derail recovery and undermine stability in some economies. Recent progress in developing vaccines tempers this risk, but vaccines must be not only safe and effective but also delivered widely in a timely way for developing economies to share equitably in the benefits.

Another risk is worsening geopolitical tensions, most notably intensified friction between the US and China over trade and technology. Recent US election results may bring more predictability and multilateral approaches to resolving tensions between the world’s two largest national economies, but full reconciliation will be a challenge.

Despite the persistent spread of Covid-19, most economies have continued to relax containment measures, having deemed strict lockdowns to be economically unsustainable. Variation in the intensity of containment reflects the state of outbreaks in different economies. Containment remains relatively stringent in Central, South, and Southeast Asia, where outbreaks have continued in some economies and reemerged in others. Containment is less stringent in East Asia and the Pacific where outbreaks are under control or absent.

Published in Dawn, December 11th, 2020