The EDB: The COVID-19 pandemic to boost production chain regionalisation and add impetus to de-globalisation
Moscow, 25 August 2020. The coronavirus pandemic may speed up centrifugal forces and weaken globalisation further, which will become one of its most significant consequences. This finding is presented in Eurasian Economic Integration 2020, a report disseminated by the Eurasian Development Bank’s (EDB) Centre for Integration Studies.
“Summing up integration results in 2019, we cannot disregard the first half of this year – the global crisis that erupted because of the COVID-19 pandemic. In early 2020, the global economy and EDB member states faced unprecedented economic, financial, and social challenges associated with the coronavirus pandemic. The spread of COVID-19 has disrupted global supply chains, increased volatility in financial and commodity markets, and affected many key sectors of the economy,” the report states.
As a result, in Q2 2020, the world economy entered a phase of recession, which may become the deepest in recent history.
Over the first four months of the year, all Bank countries, except Tajikistan, recorded an economic downturn: Russia’s GDP declined by 1.9 per cent year-on-year, Kazakhstan’s 0.2 per cent, Belarus’s 1.3 per cent, the Kyrgyz Republic’s 3.8 per cent, and Armenia’s 1.7 per cent.
In May 2020, many countries around the world, including the EDB region of operations, began to phase out lockdowns they had imposed because of the pandemic. The countries are taking measures to restore their economies depending on the epidemic situation. Leading indicators suggest that the decline in business activity may have slowed down in May. The business activity indicators (PMI) for Kazakhstan and Russia rose from their record lows in April. By the end of May, population activity improved compared to the April minimum in most of the Bank’s member states but remained below the pre-quarantine level. Therefore, the region’s economy began to move towards recovery.
“EDB member states are likely to get out of this situation unevenly, including because of varying fiscal stimulus capabilities and different epidemic situations,” the report suggests.
Bank experts believe that the pandemic has exposed the weaknesses of the globalised production system. The global community now needs to rethink the supply architecture and should expect higher regionalisation of production chains in the medium term.
Regionalisation can become an effective way to mitigate global shocks. This process implies greater cooperation among neighbouring countries in a region to create (or restore, in the case of the EAEU) effective and flexible supply chains and reduce overdependence on trade with major industrialised states and emerging markets. As for basic medical and food products, regionalisation should help localise production at a safe level and improve countries’ resilience to emergencies such as the COVID-19 pandemic.
The full version of the Eurasian Economic Integration 2020 report is available at the EDB’s website.
Additional Information:
The Eurasian Development Bank (EDB) is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth, and the expansion of mutual trade and other economic ties in its member states. The EDB's charter capital totals US $7 billion. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan.
The EDB Media Centre:
Alexander Savelyev +7 (985) 765 23 59 (Moscow)
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Sergey Gorbachev +7 (916) 727 22 00 (Moscow)