Excluding Asia's high-income newly industrialized economies, growth will drop from 5.7% to 2.4% this year before recovering to 6.7% next year. Headline inflation accelerated in 2019 as food prices edged up but remained low by historical standards. Inflation will climb further to 3.2% in 2020, but declining food prices in the latter half of the year will set the stage for easing inflation in 2021. Downside risks to the outlook are severe, most notably from coronavirus disease 2019 (COVID-19). In these difficult times, when challenges to growth abound, innovation is critical to inclusive and environmentally sustainable growth. While some economies in developing Asia are near or at the global innovation frontier, many others lag behind.
This issue of the Asian Development Outlook includes a Special Topic: The Impact of the Coronavirus Outbreak—An Update.
- Economic growth in developing Asia will decline sharply in 2020 due to the effects of the COVID-19 pandemic, before recovering in 2021. - ADB Report
- ADB's Asian Development Outlook 2020 forecasts regional growth of 2.2% in 2020, a downward revision of 3.3 percentage points relative to the 5.5% ADB had forecast in September 2019.
- Economic growth in developing Asia is expected to rebound to 6.2% in 2021, assuming that the COVID-19 outbreak ends and activity normalizes. - ADB Report
After a difficult 2019, challenges mount
Growth in developing Asia slowed to 5.2% in 2019 from 5.9% in 2018, handicapped by trade tensions, a downturn in electronics, and weak domestic investment. Global demand weakened by the pandemic will weigh on the 2020 outlook, particularly in the more open subregions and tourism-dependent economies like those in the Pacific.
The impact of COVID-19 on developing Asia—an update
The Special Topic in this report is an updated assessment of the regional and global impacts of the outbreak, and indicates substantial downside risks if it spreads further in the region's economies, and if the scenario realized is closer to the worse case than assumed here.
Developing Asia will suffer a sharp slowdown in 2020 as it struggles to contain COVID-19
Growth in the region is expected to slow sharply to 2.2% in 2020 under the effects of the current health emergency and then rebound to 6.2% in 2021. By subregion, deceleration will be mildest in South Asia and steepest in the Pacific.
The theme chapter in this report identifies five key drivers of innovation that should inform policy: sound education systems, innovative entrepreneurship, conducive institutions, deeper capital markets, and dynamic cities that bring together top universities and forward-thinking firms.
Innovating for inclusive and sustainable growth
In these difficult times, when challenges to growth abound, innovation is critical to inclusive and environmentally sustainable growth. While some economies in developing Asia are near or at the global innovation frontier, many others lag behind.
Cross-country analysis finds a positive relationship between innovation and economic growth across countries, and, in developing Asia, between innovation and spending on R&D and human capital.
Fostering innovators and an innovative culture
Analysis of firms in Asia that considered three indicators of human capital—workers' formal educational attainment, managerial experience, and training provided by firms—found a robust positive association between human capital and innovation.
Conducive institutions and environment for innovators
Patents and industrial design are critical for frontier innovations and in higher-income economies. Innovation tends to be concentrated in a few urban innovation hubs able to generate strong agglomeration economies. Across Asia, such concentration of innovation can be seen in product innovation, process innovation, and R&D.
Toward a more innovative Asia
While private research and development typically concentrates on immediately practical commercial applications, governments tend to support basic research that can spill over in multiple directions. Governments should play direct and leading roles in developing innovation systems at their early stages but shift to less direct, supportive functions after the private sector has stepped up and assumed a bigger role.