Oceania: Covid-19 and LDCs economies

Most LDC economies rely on external demand. Successful integration into the global economy brought many LDCs closer towards graduation from the LDC category, whether through tourism, light manufacturing, remittances from workers abroad or oil and other commodity exports. With the increasing number of LDCs using trade and services as an engine for growth, the expected collapse in world trade could have a lasting impact.

In addition to the low cost of production and successful domestic policies promoting the industry, these countries benefit from trading advantages in most developed and large emerging markets. Via a major cancelation of orders, Covid-19 triggered a demand shock when apparel retail failed in developing countries. Around the same time, the garment industry is facing a domestic supply shock triggered by forced closures of factories.

The main export of many LDCs, especially the Small Island Developing States (SIDS), is tourism. Restrictions on travel and advisory services in foreign tourist markets, as well as the loss of consumer income in those markets, have reduced demand, sometimes almost entirely. The fall in demand, as in the case of clothes, is simultaneous with the collapse in domestic supply triggered by travel restrictions imposed by recipient countries restricting tourist inflows.

Reduced demand for migrant workers and travel bans imposed by receiving or sending countries will drastically reduce remittances, which are essential in many LDCs. The return of migrant workers who have lost their jobs due to the crisis abroad can put further stress on limited social protection and health systems.

The overall economic impact remains highly uncertain:

Preliminary forecasts from the World Economic Situation and Prospects as of mid-2020 point to a global recession with a 3.1 per cent decline in global GDP. LDCs are expected to grow by only 0.8 per cent in 2020, followed by a strong rebound of 4.6 per cent in 2021. However, given the massive downside risks, far more negative and lasting outcomes are plausible. Evidence from the 2008 global financial crisis indicates that it took more than five years for LDCs, particularly small island LDCs, to recover from the then completely external demand shocks.

#Oceania #LDCs #Covid19

References

https://www.un.org/development/desa/dpad/publication/un-desa-policy-brief-66-covid-19-and-the-least-developed-countries/

https://thediplomat.com/2018/03/un-recommends-graduating-2-pacific-island-states-from-the-ldc-category/

Van Anh Nguyen