NEW YORK: The International Monetary Fund (IMF) has said it expects Asia’s growth to contract by 1.6% as the economies grapple with the fallout of the coronavirus pandemic.
“Projections for 2020 have been revised down for most of the countries in the (Asian) region due to weaker global conditions and more protracted containment measures in several emerging economies,” Chang Yong Rhee, director of the IMF’s Asia and Pacific Department, wrote in a blog post.
Rhee added that in the absence of the second wave of infections, growth in Asia is projected to rebound strongly to 6.6% in 2021 with “unprecedented policy stimulus to support the recovery.”
“Even with this fast pickup in economic activity, output losses due to COVID-19 are likely to persist. We project Asia’s economic output in 2022 to be about five per cent lower compared with the level predicted before the crisis; and this gap will be much larger if we exclude China, where economic activity has already started to rebound,” he said.
Talking about the international lender’s projections for the next year, Rhee said the outlook was optimistic for several reasons.
Firstly, he said Asia was heavily dependent on global supply chains and could not grow while the whole world was still coming to grips with the coronavirus pandemic.
“Asia’s trade is expected to contract significantly due to weaker external demand, with total trade (exports plus imports) projected to decline by about 20% in 2020 in Japan, India, and the Philippines. Reorienting Asia’s growth model toward domestic demand and away from heavy reliance on exports has begun but will take more time to be completed,” he said.
Even if the lockdowns were eased, Rhee said, economic activity was not likely to return to full capacity. “Our [IMF’s] recent study shows that while a lockdown may lead to a contraction in economic activity—as measured by industrial production—of about 12% a month, a full reversal in containment measures may increase economic activity by only about seven per cent,” he said.
“Those Asian economies — especially Pacific Islands countries — which depend on tourism, remittances, and other services that require in-person contact, which will take a lot longer to recover,” he added.
Citing inequality as another factor which may hinder growth in Asia, the IMF regional director said another research showed how pandemics in the past “led to higher income inequality and hurt employment prospects of those with limited education.”
“These effects are likely to be exacerbated in Asia due to the large proportion of informal workers, making the recovery more protracted,” he said.